Updated: Feb 18
Over the years, as angel investors involved in a large angel network, we have heard many reasons why investors decline to invest in MOST of the deals that come before them. Top reasons include variations on the following themes:
1. Management: Weak management team, lacks a track record in this industry or in a start up, no skin in the game, know-it-all egos,
2. Finances: Overly optimistic valuation, unrealistic financials, money sought unlikely to deliver the milestones in the timeframe projected, no cash flow, no collateral, no savings, very high pre-revenue expenses, excessive overhead.
3. Investment terms: Undervalue the importance of early money. Too much risk and too little reward for initial investors. Likely dilution of Seed Round investors
4. Proof of concept for product, service, pricing: No beta testing, no customers, no predecessors
5. Competition: Lots of competition, low barrier to entry, no distinctive differentiation, or the management does not know their competition or market well.
6. Regulations: Lots of regulatory hurdles, each one slow, cumbersome, and expensive
7. Wrong fit: investor invests in other industries, stages of development, or geographic regions. Lack of trust/respect for the entrepreneur.
8. Novelty: The company has jumped on the bandwagon of the “next new thing,” The investor wants to watch and wait.
9. Vaper ware: Cannot tell what the company sells, how it makes money, what its market size is, why it is appealing, to whom.
Ways to get around these problems:
1. Management: Showcase your management as industry experts, including, if appropriate, speeches, white papers, press releases. Scrutinize your management team as investors will.
2. Finances: Solicit pre-money and post-money valuations from a dispassionate professional.
3. Investment terms: Assess your financial resources and time line with and without outside money. Be realistic about how much you need it.
4. Proof of concept: Consider providing your service or product for free until you get the bugs worked out and lots of testimonials.
5. Competition: Develop a specialty. Solve a problem better than the competitors. Demonstrate that.
6. Regulations: Some investors do not want to deal with regulated industries. Others will. Research them.
7. Wrong fit: Research the investors’s criteria. Make a good impression.
8. Novelty: This usually means that both the concept AND the management are untested. However, lots of angels ARE interested in novelty on the theory that they can get ahead of a curve.
9. Vaperware: Develop a 30 second “elevator pitch,” a 1-2 page executive summary, and a 5 minute power point. If you can be brief, you can be clear. If you cannot be brief, you will likely confuse people.
Starlight Capital’s conferences introduce pre-screened entrepreneurs to our network of angel investors. Each presenter delivers a short video and a live Q and A, during which investors can ask a few questions. The next day, the presenters receive a spreadsheet with the contact information for everyone who registered to attend. The number varies from 500 – 1000. The presenters then research, email, and call investors to schedule private appointments to share their business plan in more detail.