Introduction
You have a great product with the potential to make significant ROI. You are well put together, and so are your website, deck, and handouts. When you make your pitch, everything goes as planned; you deliver your pitch confidently and answer questions comprehensively. The investors were obviously impressed with your project, but none of them offered you any funding or feedback.
Many founders have had awesome pitches flatly rejected. Shawn Davis, popularly known as Chef Big Shake, was rejected by all Sharks on the popular TV show Shark Tank. He had offered a 25% stake at $200 000.00 in his startup. Six years later, he was doing over $5 million in annual sales.
Sales pitch rejections and the absence of feedback often make founders question investors’ thought processes. The truth is, investors are normal human beings. They just happen to own or have access to large sums of capital. But there are different types of investors; many factors guide their decision-making. Let’s examine the drivers that influence investors‘ decisions.
I Only wanted $500.000, Why Didn‘t they Fund Me? – Angels vs Professional Investors
You probably didn’t get funding because you pitched to professional investors instead of angels. Angels invest with their own money, while venture capitalists or VCs are investor partnerships. Angels represent themselves, while VCs tend to be represented by experienced Fund Managers. Factors like a passion for helping others, a desire to make a difference, or even bragging rights may motivate angels to invest their money, they do not give account to any boards or partners.
Fund Managers have metrics to meet; they need to deliver impressive rates of return (ROR) to please the other stakeholders. As a result, they have to match the ratio of their investment to their time, so it is inefficient for them to invest in small projects under $1 million. Ideally, they want to invest in $50 million projects which offer value for their time.
Why Do Investors Throw Money at Some Founders?
Investors seem to throw money at some founders because they observe other investors. They trust the judgment of professional investors who have developed reputation currency through sealing several successful deals. Investors may be interested in your project but fail to fund it because they lack adequate industry information or experience with your product. If you can convince a professional investor with a proven reputation to fund you, other investors will line up to throw money at your project.
I Made The Perfect Pitch for My Winning Product But Failed to Get Funding?
A good pitch and product are vital, but other factors matter more to investors. According to Patrik Söderlund, investors “invest in people with companies, not companies alone.” Investors are regular people with diverse backgrounds, experiences, and interests. They are more likely to fund founders they can relate to better.
To increase your funding chances, research investors and target those who possess skills, characteristics, and experiences that will make your business better and network with them. Follow their social media pages and participate in online or in-person engagement whenever possible. Give these best-suited investors a chance to get to know you, your ethics, and your values. Once you have built a strong relationship with them, then funding is almost a formality.
Investors value trustworthiness and competence. Once they have given you their money, they may not have very much influence over how you spend it during the next five to seven years of your partnership. If you oversell, misrepresent, or lie during your pitch, and they discover it during due diligence, that’s a breach of trust. How can they expect you to be honest during the upcoming years of partnership? No prudent investor will fund disingenuous founders.
Why do Investors lose interest?
Investors may still be interested in funding your company, but they may feel you are not yet ready for funding, or they may need more information. They do not want to say no to you now since it could turn into a yes; later, they prefer to retain optionality. Investors are notorious for not providing feedback, but it is their choice to avoid disclosing reasons for not funding you. It could be as simple as you not having a partner yet because they know the vast workload can overwhelm one person. Some investors do provide feedback, but others find it difficult to criticize your vision. If provided, use constructive criticism to help you improve as a founder.
Conclusion
Investors are no different from other people; some people keep their cards close to their chest, others are willing to engage with you. To understand investors, you must research them. Identify those you share common ground with and seek to understand their motivation and the qualities they like to see in founders. Next, integrate those qualities into your modus operandi. Always try to engage investors, and as you interact with them, remember they are a person first and not a walking wallet. Ask them questions that will help you learn more about fundraising and being an excellent founder, chances are they will gladly help you.