Four Reasons Why You’re Still Not Getting Investment: Part 2
Alright, so we’ve remedied the first four reasons, but what if there is still a commitment delay on your round? Here are four more reasons that could be slowing you down:
1. You haven’t got the interest of an associate/analyst
When a member of the investment team puts your company forward in the firm, they have to convince the rest of the team, the partners, and potentially an investment committee. The whole firm can play a role in the approval process.
The popular opinion is you only need to have a partner on board to get investment. Yes, you need to have a partner on board, but the associates and analysts are the ones who are carrying out the initial work of the investment. They perform due diligence and the first review of the company. If they’re not excited about it, the partner on the deal will be interested in why. Partners want their analysts and associates aligned with them when considering a company, so it’s unwise for you to write them off in the process.
The last thing you want is a deal falling through because the VC support team isn't vouching for you. You want to have as many people as possible vouching for you.
Takeaways: you shouldn’t ignore the support team at the VC firm. You should engage with the members of the investment team who are working on your deal. You want as many people on your side as possible.
2. Your IP situation isn’t great
Patents aren’t everything, but these days a patent can sell your company without you even having customers (if someone really wants the tech). Now, this applies more so to deep tech companies rather than traditional ICT. If your main value proposition to the investors is that you’ve got a killer technology but you haven’t been able to properly protect it, they can be apprehensive of getting on board.
This is because the IP can be a major component of a company. Without protection, it's possible that investors will feel that there is less secureness in your business and that their investment could be left exposed.
Example: a company that has a great back-end technology but the IP is muddled between founders and individuals not involved in the company. Another situation is that the IP has yet to be assigned to the company itself.
Takeaways: figure out who exactly has a claim to the IP and if it's complicated, have a strategy for incorporating it into the company. You want to ensure that the IP is assigned to the company. This can be done by buying out an owner of the IP or creating a royalty program.
3. They don’t understand your market strategy
VCs will generate their own target market research but they need to understand who exactly you’re going to sell to, how much you can sell to each customer, and at what price.
I’ve read countless business plans and some have lots of vague data on who the actual target customer is, how much each can buy of your product, and what the tangible plan of getting those first customers is. Having to spend lots of time figuring this out can slow down an investment decision.
Investors don’t want to estimate your market strategy, they want to know it. Business plans lacking these details can leave the investors unable to convince others in their firm because they can't convey how it's going to sell.
The profile of the target customer and the strategy to secure them is vital. If an investor can’t put themselves in the shoes of a customer, they probably can’t get themselves or their team behind your product.
Takeaways: flesh out who you’re selling to. Give them as much data as possible on how much you will be able to sell to those customers, and give them the strategy of acquiring them.
4. You haven’t addressed the risks of your business
I had a great conversation with an entrepreneur at a conference who told me that VCs are paid to poke holes. I thought this was a great description. Given the ratio of businesses that get money vs. the ones who don’t, it’s easy to see that VCs are accustomed to looking at start-ups through a critical lens.
So if you haven't provided them with enough convincing information they will have an easy job rejecting you. Why? Because they consider the reasons not to invest in your company as much or even more so than the reasons to invest. They do this because they are immediately faced with risks that come with the aspects of your business. So your job is to address and show how you will decrease those risks.
Takeaways: Ask them if there’s anything that they’re unsure of about your business plan. Guide them along in the right direction by going in-depth with them on why you will be able to mitigate the risks associated with your execution strategy.
Check out part one here: https://medium.com/swlh/four-reasons-why-youre-still-not-getting-investment-7e27520ccef7
