5 reasons your startup isn’t attracting investors

Last week, Techstars managing director John Fein told us that one of the main complaints he hears from Kansas City investors is that there aren’t enough fundable startups. Investors may be right, but it’s not necessarily a lack of good ideas. Today, Kansas City investors are looking for more than the next big idea: they’re looking for an idea attached to a solid, scalable business.

“I’ve got this great idea, I just need $500,000 to make it work.”

Investors have heard some variation of this statement thousands of times. With so many people vying for the same investor dollars in the Kansas City market, what’s a startup to do?

Here to offer some insight into the mind of an investor is industry expert Dave Palmstein, managing director of the Northland Angel Investor Network. With 30-plus years of experience in the startup world and more than 50 funded companies under his belt, Palmstein has seen firsthand what separates the “funded” from the “not funded.”

According to Palmstein, your company is destined to remain in the “not funded” category if:

1. Your business doesn’t solve a real problem

This one usually makes people groan because they’ve heard it so many times, but it’s still the one investors see the most of. Your business has to solve a real problem in an interesting and concrete way. If your investor has to imagine how your product or idea could fit into the market, they’ll walk away. Make sure you have overwhelming proof that your idea is solving a significant problem differently and better than the current “standards”.

2. Your company’s management is a trouble spot

What does your management team have to do with your business being funded? A lot. Investors know that they are not only funding an idea, but the founder’s ability to commercialize it. Ultimately, Palmstein says you need to evaluate these key areas of your team:

• Do you have strong technical leadership?
• Do you have the right financial leadership?
• How strong is your sales/marketing team?
• Is your operations-level management in order?

You and your management team must be coachable. Showing investors you’re well organized, structured, and still willing to admit you don’t know what you don’t know is a great asset. Allow your investors to act like mentors.

3. Your pitch needs work

Your pitch must be polished, clear and concise, and really get to the crux of what your business offers. Your investor wants to know:

• What will the investor’s return on investment be and is it realistic? Does the problem you’re solving warrant the amount of money requested?
• What will the investment be used for and is the amount you’re requesting realistic?
• Why should the investor be interested in supporting the industry you’re in?
• Are you approaching an investor ready to invest in the funding stage your company is ready for?

Tell the story that showcases how your solution fulfills the often-overlooked requirements of your investor and you’ll be remembered in the sea of requests.

4. Your valuation expectations are unrealistic

Investors want to understand how your business is going to grow and become valuable. You have to be able to show them a model that makes sense.

For example, Palmstein notes that if you don’t have a customer base or haven’t developed a product, you’re only valuing potential or intellectual property. In these cases, you must be willing compromise on valuation with your investor. Remember, it’s a dialog between you and your investor pool. Be realistic and be flexible.

5. You haven’t gained enough traction

Investors want to know there is a real market for your product or service. At the very least, have a handful of orders ready to go. Even if there are contingencies attached, having customers lined up shows you have a product with strong market value. The more you can prove a strong customer base, the better your chances are to be funded.

Although this list may seem like common sense, Dave Palmstein sees startups missing at least one–and often many more–all the time. It’s a competitive world, but if you cover these five bases, you may just walk away with your own success story.

Larissa Uredi is the marketing and sales director for The DeviceShop, a small business accelerator out of Shawnee, Kan. that offers office space, workshops, and manufacturing and prototyping services. The DeviceShop considers itself to be a community of innovators aiming to develop successful and profitable entrepreneurs. Uredi is also the business developer for No-Where Consultants.