10 TOP TURN-OFFS – WHY INVESTORS REJECT PROPOSALS
1. What turns investors off?
Much is written about what investors are looking for and what turns them on – but less is said about what turns them off. It is worth taking a step back and getting an understanding of investors’ pet hates. So, in no particular order here are the Top 10 turn-offs:
2. The management team lack important skills
The depth, experience and quality of the management team is a top priority for most investors. Some say it is even more important than the business proposition. So it is worth doing a specific SWOT, identifying skill gaps and taking remedial action to strengthen your team before you start approaching investors.
3. The CEO can’t sell
It goes without saying that the projections have to be believable – but are they supportable? Classic “Hockey Stick” projections, with steep increases in revenue at the back-end, are the most difficult to justify. Can you provide justifiable evidence that the financial model is sound and the projections are achievable; rather than giving the impression that they are the result of just putting a finger in the air?
4. The financial returns are inadequate
The other side of the coin though, about the credibility of far-fetched projections, is that the proposition must be suitably attractive. Investing involves risk and if the returns are not attractive enough both in terms of ROI and equally importantly the timing and speed of return, then there will be less interest. Investors don’t want to grow old waiting for their investment to mature.
5. There is a lack of trust
Gaining an investor’s trust is an issue on many levels – but how do you create a level of trust in the first place? One word that is rarely used in describing the fundraising process is “authentic”. Put simply the whole proposition needs to be consistent and believable. In short make sure that you highlight all the upsides of your proposition but don’t over-elaborate and don’t oversell.
6. There is no track record or proof of concept
In an uncertain world an investor is looking for as much certainty as possible. What you might think is “proof of concept” is probably not enough. Just because five people say something is a good idea it doesn’t mean that 20 will. You have to be cleverer than that.
7. The proposition is too complicated
If it sounds complicated, it will be dismissed out of hand. Anything that takes a great deal of delving into and understanding will get short shrift. So keep it simple. Some genuine investors are receiving considerably more than 100 proposals a week – and that is no exaggeration. They don’t have time to look too far under the bonnet, so if the investor doesn’t “get it” then that is your problem, your hard luck and not theirs.
8. The proposition doesn’t scale
Any investor wants growth, but if for every pound you put on in sales you have to add (significantly) to the headcount and other costs then it won’t be particularly attractive. In addition if there are opportunities to a make a quantum leap and attract a greater number of customers or increase margins – then that is a different matter.
9. There is a lack of market awareness
What is the competition doing and which way is the market going? If there isn’t a clear understanding of the competition and a genuinely informed view of the way the market will prosper then the company is unlikely to be successful – and any investment is equally unlikely to work out.
This can also be categorised under the heading of “Naivete.” Any potential investor is going to conduct due diligence and swot up about the market – that is if they don’t know all about it already themselves. So, it is important to demonstrate a deep and sophisticated knowledge of your market.
10. There is no clear exit route
It shouldn’t come as a big surprise but investors will want to know when they are going to get their money back! If there is no clear route to exit, via a trade sale or VC or going onto one of the markets, then they are less likely to invest.
One last point. Does anyone like to work to a difficult deadline and one that is not of their own making? Don’t make any offer subject to a short investment deadline. Make sure that your projections allow enough time to strike any deal. Looking for investment 6-12 months ahead shows good husbandry and sensible management.
As you can imagine, asking for immediate funding can send out the wrong signals and make the exercise all the harder.