Of course, there are many reasons your start-up might not receive investment, and a lot of columns or articles dealing with this topic choose to take the route of telling you how to fine-tune your pitch, or tweak your business plan. However, this is ultimately a slight red-herring.

Whilst these things are important, the most important reason your start-up won’t receive investment is that the core concept has problems and needs refining. Here are a few of the ways in which the core of your business might be letting you down, and how to fix them.

The idea

This might sound harsh, but sometimes the initial idea just isn’t good enough when it’s brought in front of the investor. That’s not to say it can’t be made into something good enough with some work, though. It requires you to take a little bit of perspective from your idea, ask some tough questions and make some tough decisions.

For example, this product or service might perfectly fit a need that you have, but that need might not be shared by others. Or alternatively, it might have identified a problem, but not solved it efficiently.

Again, this isn’t necessarily fatal. If the problem is that your problem is not shared by others – then maybe it’s time for some more effective market research. This will allow you to mould your product so that it is more flexible and applicable to a wider group of people, while remaining specific enough to gain a real foothold in the market.

If the problem is that it doesn’t solve the problem efficiently then look at areas where your solution isn’t intuitive or takes a long time and try to fix those. To do this it can be useful to explain the idea to friends and see if they have questions or objections to the idea and if they have suggestions to work around these.

Market saturation

Unfortunately, it’s unusual that you’ll be the only person to have had an amazing brainwave and spot a gap in the market. Many business ideas, or fledgling start-ups, which claim to be unique are in fact not, and in many cases there are actually many businesses already out there, and you’ll be fighting for the same customers.

This doesn’t necessarily spell the end for your idea or your business, you just need to do your research on  competitors and think hard about how to do it better than them. If you can’t do this, then any investor who has done their market research is unlikely to pick it up.

Scalability

If your start-up is already off the ground, and the product or service is up and running, then scalability might be worth thinking about. If your business is great for your clients and customers and is providing a service they either didn’t have before or that is better than the one they had before, then you might think everything is rosy.

However, even if the demand side looks ripe for investment, have you thought about the supply-side? Will your business model be scalable as the business takes advantage of the investment and grows? This might be what is putting off prospective investors.

Even successful companies run into this problem and it can put off investors. For example, delivery start-up and now giant in the sector, Deliveroo, recently ran into problems finding VC funding because potential investors felt that the logistics of expanding their delivery models into new markets would be problematic.

In the end, they took private equity funding because VC firms felt they simply couldn’t envisage the kind of internal growth that would justify their investment. The problem wasn’t what they had now, but what they would need to have once they had the investment.

So, while there are many other reasons your start-up might not receive investment – including ill thought-out business plans, poorly planned and delivered pitches, and going after the wrong investors for your business – the biggest and most likely reason will be flaws at the core of your business.

This doesn’t necessarily mean you need to go back to the drawing board completely, it just means that you should do your research, ask some tough questions of your idea, and get the opinions and insight of others, before taking it in front of an investor again.

Raj Dhonota is a Ex-Apprentice star, a mentor and an investor with a portfolio mounting to 60+ investments of between £50,000 - £150,000. He is involved in several ventures that help entrepreneurs and companies make the transition from idea to startup to success.

1 COMMENT

  1. Hi,

    Very well written article.

    I think if ideas fits into all three parameters and is innovative then investors would be ready to fund at Idea stage stage without working prototype and even in absence of co-founder team

    Thanks again for sharing such great insight

    Ravindra
    CEO and Co-founder Iunique
    iunique.org
    Iunique- An Idea Funding Engine Funding World Changing Innovative Idea at Idea Stage Without Risk To Your Current Livelihood

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