October 31, 2014  
 
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Raising Money

 

Investor Turnoffs

Investor turnoffs will kill your chances of raising money in a heartbeat. If you understand what investors don't like, you can greatly increase the odds of raising money for a startup venture.

Investor turnoffs can quickly kill your chances of raising money.
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Prospective investors have heard it all before. Here are some things they definitely don't want to hear:

  • We have no competition. You have to be kidding. Everybody has competition of some kind. Suggesting that you don't implies that either you don't know your market, that you are not a deep thinker, or, worse, that you are trying to deceive investors. All of these are instant deal killers for sophisticated investors. And, by the way, if you really have no competition, maybe there's a reason for that -- perhaps there's no market.
  • We are the low cost provider. We are extremely passionate about the industries and companies we interact with.
  • We only need a 5% market share. If you only have 5% of a market, it suggests that there are other companies who have much more than you. The investor would rather invest in them! If those companies are entrenched companies, the odds of you stealing 5% of their market share are pretty small. Lastly, a percentage-of-market-share model suggests a shallow top-down analysis -- investors prefer bottoms-up financial analysis.
  • Our numbers are conservative. Everybody says there numbers are conservative. Nobody says "Our numbers are highly optimistic. Realistically, there isn't a snowball's chance in hell that we will hit them." Accordingly, don't waste precious time saying that your numbers are conservative.
  • We have the first mover advantage. There are countless stories of companies that had a first mover advantage and never made it. Being first to market sometimes suggests that you are too early. Even worse, perhaps you are going to be evangelizing the business at great expense for the benefit of future competitors (and their investors) who will capitalize on your evangelism and take over the market with much less expense. If you really are first, explain how that creates some barriers to entry for competitors.

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