As a startup founder, you can choose to fund your business by yourself. However, should you not have enough to fly your ideas to the fullest, you need financial support. But many obstacles stand in the way of startups when trying to secure funding. In other words, there are many possibilities that your startup may not get funding.
No bank or investor wants to lose money. Therefore, when you look for funding, keep in mind that investors may decide against investing in your firm for a variety of reasons. So before pitching to investors, ensure you know the following crucial reasons your funding application may get a rejection.
Your potential investor has experienced significant financial losses in your market segment
If a venture capitalist (VC) or an organisation you’re pitching to for funding is still nursing wounds from a significant loss they made in a similar business to yours, you’ll likely not get the financial support regardless of how brilliant your pitch or idea is.
Therefore, it’s important to make a thorough background check on your potential investor. Know where they’ve made hits and misses. The information you glean would help you frame your pitch in the best way to fondle their sentiments and balm their likely financial injuries.
Your potential investor has made so much money from the class of business you’re pitching
It may sound absurd but many VCs have a pessimistic view of the very industry that helped them get where they are now. They have an excessive amount of insider knowledge about the difficulties that lie in wait for you as a startup founder in the market.
They know the significance of luck or other external circumstances. Therefore, it can be difficult to impress them that you know the industry very well enough to thrive. Investors are more likely to get enthused about a market they have little or no background knowledge in.
You have a complete lack of awareness when it comes to potential dangers
Investors want to know that you’ve thought through the dangers you may face and are prepared to deal with them. There are several possible negative outcomes, so demonstrating familiarity with the competition and an awareness of their strengths and shortcomings is crucial. It’s also vital to demonstrate that you’ve thought out how your firm will defend itself from rivals while taking advantage of their shortcomings.
Don’t fall into the trap of folks who do little thinking or research about their business and go on to say things like “We have no competitors.” You may be tagged as one who lacks understanding of their business or someone running a business that has no demand.
You flaunt an obvious ego and know-it-all attitude to your potential investors
Another reason your startup may not get funding from potential investors is if you parade with the wrong attitude.
You need to understand that confidence isn’t the same as arrogance. And if you’re not careful, you may be living the latter as the former. There’s a dominant apprehension to risk among most investors. Therefore, you don’t want investors to see you as an “entrepreneur risk.”
Therefore you need to put up a confident but teachable and malleable disposition when pitching to potential investors.
Clive Butkow, CIO of South African disruptive technology fund GroTech, echoes this sentiment when he talks about the significance of an entrepreneur being open to feedback and guidance. He implied that strategic capital is not the best option for business owners who are not amenable to coaching, refuse to admit to the possibility of another’s capacity to help their startup’s growth strategy, or wish to not be held accountable for their actions.
They are not your market’s kind of investors
Several investors usually state the kind of startups they fund. Unfortunately, they still receive applications from hopeful business owners who deploy the shotgun approach and submit their company’s information without first ensuring that it fits the investor’s funding profile.
For example, you’re likely to get a rejection when you apply for a tech-centred fund when your startup sells groceries. There’s just no correlation. Also, the funding your startup needs must correlate with the financial offering of your potential investor. Therefore, applying to a fund that has a $5 million minimum deal size when your company needs about $100,000 to run may be a futile effort.
The way you approached the investor was ineffective
In cases where you’re looking to pitch to a private individual who’s a potential investor, you’ll need to approach them in a way that won’t make you look like a gold digger or desperate startup founder. Such investors may need time to get to know, like, or trust you before discussions of funding ever surface.
Therefore, in order not to get your startup funding request rejected by such people, you should cultivate the habit of courting potential investors’ trust and likeability. You can do this by establishing a rapport with them far in advance of any financial needs.
Final thoughts on getting startup funding
In conclusion, a skilled founder can get through any of these obstacles, but it’s usually preferable for them to focus on forward-leaning investors. Meanwhile, as earlier stated, if you feel you have enough money to scale your business, you don’t need to actively seek funding.