Investor Red Flags: What to Avoid in Your Startup Pitch

If you're looking to expand your business, you'll likely need funding from investors. This is important for your business; it won't only provide financial assistance. Investors can also contribute their time, resources, and relevant expertise to help your business reach the next level.

There are a lot of investors and VC firms who are ready to invest in startup businesses, but how do you reach them? First things first, you need to know whom to reach. If you reach out to investors who are not associated with or interested in your target market, it'd be a waste of time. First, go through our investor database of over 90,000+ investors and find the investors in your niche. 

The importance of pitching 

After sorting out potential investors comes the pitching part. Pitching is basically explaining your business idea to potential investors. This part is crucial yet interesting. This is your one shot to win the investor's heart. You cannot make any mistake here. Although there are quite a good number of investors out there, only a fraction number of startups manage to get their required funding. 

A lot of startups make little to big mistakes that lead them to unsuccessful pitching rounds. Today, we are going to talk about what you should learn from their mistakes and what you should and shouldn't do.

What to avoid?

In this section, we will discuss the most common mistakes that founders make so that you can take lessons from them and improvise your pitch.

Uninteresting Start

Attention span stays the highest for everyone at the beginning, and you need to utilize that. A lot of people just throw in colorful slides filled with big numbers, data, and charts to investors at first. Although those might be very valuable in data, that can be an instant turn-off. 

Think your pitch like a story or a novel; if people don't find a story interesting at first, will that lead them to read further? No, right? The same psychology applies here, too. To benefit from the beginner's attention span, you can choose storytelling techniques to hook the listeners to your story. 

To make sure the story goes with a flow, take the VCs through the journey of your business. Arrange the story in a way that investors can connect the dots easily. To ensure you have done the beginning part exciting enough, ask yourself and your team members questions like, Does the story make sense? Does the narrative have a consistent flow? Is the storyline memorable and capable of holding emotion?

Take everyone's opinion and structure the pitch accordingly. Remember, there is a saying - "First impression is last impression." Do not forget to utilize that.

Overloading Information

Another common mistake founders make is— they talk and show a lot of irrelevant technical data, product features, etc., and forget to show the data that actually matters. This overdose of information can actually backfire. 

According to a study, investors only spend, on average, three minutes and 44 seconds reading each deck and 20 minutes listening to your presentation. So, making a long 50-page slide and explaining those slide data in front of the investors won't really help you that much.

Here is what you need to include and talk about— problems and opportunities. After you've explained this effectively, present your value proposition, traction, market size, and more. Most importantly, you should know how to attract investors to your business. 

Missing Long-Term Plan

A bitter truth is a lot of startup founders don't know what they are doing. Even more saddening part is they don't realize it until they're being asked about it. As a founder, you should always do enough research to be able to handle almost all sorts of questions from investors, and mostly, they are going to be about your vision and strategies. 

Investors want to see your strategy, goals, and especially where you want to take your brand in the next five to ten years. 

To make investors feel you are prepared enough, give statements on topics like which market you plan to take a lead on, how you are different from your competition, and if not, what actions you will take to beat the competition. Don't be shy to show or talk about the issues and challenges that you may face. If you are fundraising in the early stage, talk about your growth milestones, key growth timelines, etc. 

Missing Market Insight

One piece of advice applies to every step of the funding round — 'Never go underprepared.' Do enough research and gather vast knowledge about the market you are planning to play in. 

You have a cool idea, you pitch it to the investors, and they invest in it— no, it doesn't work like that. Investors don't just invest in the idea or the venture; they invest in the market. 

So, it is a must for you to have enough knowledge about your market. You must do enough research and show the relevant numbers to the investors. You must convince your investors why you would be a good player in your field and how you plan to tackle your competition. Timing is everything in this game, and you have to show it how and why. Tell them why starting now will give you benefits.

Claiming You Have NO Competition

This is also a big mistake many founders make. Saying there's no competition in your startup pitch can harm your credibility and appeal to investors. Investors often doubt these claims because they assume every industry has existing competitors.

It might hint at insufficient market research. On the other side, recognizing competition reveals transparency and market awareness. It confirms the demand for your product or service and lets you emphasize what makes your startup special. 

Investors value the entrepreneurs who can explain their unique value and how they stand out. It demonstrates your ability to navigate competition and adapt to market shifts. These qualities are very important for long-term success.

Mixing Business Models

Using multiple business models in your startup pitch can signal uncertainty and a lack of a clear plan. Initially, focus on a single strong model to demonstrate a clear revenue strategy. 

As your business grows, consider adding more income sources strategically. Starting with one model allows for a solid foundation and better market understanding before expanding. This simplifies your approach and avoids overwhelming potential investors with a complex mix of models from the start.

Unclear Funding Ask

This is what all the struggles are for. The cherry on the top is funding. This part often doesn't get the attention it needs to get. Some founders find it super difficult to come up with the proper number to ask for funds, so they just come up with random numbers out of their intuition that don't make any sense. Often, the amount ends up being far above or beyond what it should be. This can result in investors being unsure about the purpose and adequacy of the requested funds.

First, take the time to fully understand your business milestones and objectives. Second, calculate the precise amount of funding required to reach these milestones. Begin by analyzing your expenses for the initial 18-24 months, which should encompass capital expenditures, operating costs, and working capital. By doing so, you can present a clear and well-justified financial plan to potential investors. 

In summary, to succeed in fundraising, try telling an engaging story. You should always focus on vital information and clarify your long-term plan and funding needs. Hope this information helps you in the fundraising phase and also gives an overall understanding of the situation.