The idea of starting up your own business is one that appeals to a lot of people, which is why startups are so popular nowadays. Anybody has the equal opportunity to become a successful entrepreneur and bring their idea to the market for success. 

However, the biggest challenge of bringing your idea to life is getting the funding for this. 

Some entrepreneurs are fortunate enough to have a financial backer, whether it’s their parents, or use their own savings to fund their ventures. 

There are, however, some entrepreneurs that are not fortunate enough to have this kind of financial safety net, and during the initial stages of their business, it can be difficult to get investors to choose to fund them. 

This is where an angel investor can help you. 

Simply put, an angel investor is someone that provides initial capital for a startup, even before they have any definable results or sales records. 

Essentially, if a startup has not yet established its business and product, it will need to rely on an angel investor to get them off the ground. 

Like any other investor, you have to convince an angel investor that your business is worth investing in, as they’re not going to invest in just anybody. If your proposal and product aren’t compelling enough, they may choose to turn down your proposal. 

Learn to avoid this by reading up on some of the major reasons why an angel investor will walk away from your proposal.

Reason No. 1 – Your Business Idea Doesn’t Have A Clear Market

One of the basic requirements of a successful proposal is to make sure you have identified a problem and a market for your product or service. You cannot jump into the entrepreneur game without knowing what you’re selling, and who you’re selling to.

You need to be able to clearly explain to your investor what the need or pain point is that you are solving and why this problem needs to be solved from the perspective of your customers.

Make sure you understand the market and its size. 

In addition to understanding your customer, you need to take the time to prove that you fully understand the market and its size. 

How large is it? What are the trends? Where is there growth potential? Who else serves this market? What percentage of your target audience has already implemented a solution? Why aren’t these current solutions enough for the target audience?

Reason No. 2 – Make Sure There Are No Barriers To Entry

Let’s say that you have defined a problem, demonstrated an understanding of the market, demonstrated how big the opportunity is, and then highlighted why it’s important to solve this problem now, but you have forgotten one very important thing: your competition. 

What if another company comes along in six months with a similar idea or approach but with enough cash on hand from other investors before it ever gets off the ground? 

This scenario happens far too frequently, which is why making sure there are no barriers to entry (such as patents) is so crucial in convincing an angel investor that they should invest in your startup idea instead of someone else’s.

Make sure you have a competitive advantage. 

So let’s say that after doing some research, you find out there aren’t any patents or protections on your idea (or maybe nobody has even thought about solving this issue), but maybe another company already has solutions for this issue, even if their current solution isn’t great.

If they already own most of the market share and have deep pockets, then how can you convince an angel investor that their money would be better spent investing in your startup instead of just giving more money to the larger company? 

If there’s anything unique about your idea outside of patent protection, something like how you plan to execute it, or a first-mover advantage, then now is the time to mention it.

Reason No. 3 – You’re Asking For Too Much Money

Know the market. 

Before you begin writing up your proposal, do extensive research into similar startups and how much they’ve received in their rounds of investment. 

Assuming that you’re not a total novice to the market, use this information in conjunction with your own knowledge to get a good idea of how much money is reasonable for your business at its current stage.

Be realistic about your needs. If you’re just starting out, don’t ask an investor for $2 million right off the bat—it’s way too much money for someone who has yet to prove themselves in the industry. 

But then again, if you need $50K to get started, don’t ask for $30K because you think it sounds like a more reasonable number; investors are accustomed to discussing larger sums of money and will likely scoff at such a small amount.

Think carefully about what it will take for your business to grow and flourish over the next six months or year, and be honest with yourself about what kind of resources that requires.

Ask for what you need—but nothing more. 

As mentioned earlier, asking an investor for too little can be just as bad as asking them for too much; both scenarios convey that you’re either not being open about your needs or are naive about what kinds of financial burdens affect startups at certain stages in their development (or both). 

Clearly outline how much exactly you need and why it’s important that you receive it within the next five minutes or else everything will fall apart before it even has a chance to kick off from the ground. 

Avoid padding out budget lines with fluff expenses simply because there’s extra room on the sheet or one particular area is underfunded. 

Conversely, don’t steal from one budget line to fund another unless there’s good reason to do so (e.g., removing advertising costs now because new data shows that investing in additional research technology would give better returns on investment). 

In other words: make sure that everything adds up.

Explain where exactly the money will be going. This is one of the most important aspects of your proposal—if an investor doesn’t understand where their money will be allocated, they’re not likely to give you a second chance to explain it. 

Use clear and concise language to break down each budget line for them, specifying things like how many new hires you’ll be able to make with the additional funding, what kinds of equipment or software purchases can be made, and so on. 

In short, make it easy for them to see a direct correlation between their money and your company’s tangible growth.

Don’t forget about yourself. It’s important that you allocate a certain amount of the funds for yourself and your team, whether it’s in the form of salary or other forms of compensation (like equity). 

Investors want to see that you’re confident enough in the success of your venture to put your own money on the line, so including this information shows that you’re not just asking them for money but that you’re also willing to risk your own capital as well.

Reason No. 4 – You Don’t Understand Legal Requirements

Another reason that a potential investor might walk away from your proposal involves legal requirements. 

As the founder and CEO, it’s your job to ensure that you and everyone in your company are complying with all applicable laws and regulations. 

This can include anything from zoning restrictions to labor laws, tax obligations, product liability issues, environmental mandates, health and safety legislation—the list goes on.

If you fail to properly abide by the law, you may face harsh penalties or even criminal charges. The same goes for any of your employees or contractors who violate the law while working at your business. 

If an angel investor learns that you haven’t done everything you’re supposed to do in this regard, they may decide not to invest in your company after all, and you cannot blame them for this. 

The legal risk of a business that fails to comply with the legal requirements to run it far outweighs any potential benefits that an investor can gain from it. 

To avoid this issue (and keep yourself out of trouble with the law), look into what legal requirements apply to your business. 

Learn about how these legal matters affect your daily operations, and be sure to double-check them regularly so that you remain compliant as regulations change over time. 

In some cases, it helps to hire a lawyer so that someone can oversee these issues for you full-time, but if hiring a lawyer isn’t within your budget right now, consider using an online platform for your legal needs. 

With the boom in startups, there are now plenty of resources available to help you meet your legal needs without having to seek out a legal firm. 

This is more cost-effective for a startup, so it’s a strong option to consider.

Reason No. 5 – You Don’t Have A Business Plan Or Financial Projections

Angel investors are often your friends, business associates, and sometimes family. They expect you to have a clear vision of where you’re going with your business and how you will get there.  

Your business plan or projections are essential compilations of information that show the long-term growth and plans of your business, and these will help the investor decide to back your business. 

Without these, they will find it difficult to find a reason to back your ideas and are likely to walk away.

Reason No. 6 – You’re Not The Right Leader For This Business

Of course, there are some investors who are more willing to work with you even if your skills and experience aren’t quite in line with what they’re looking for. 

But even so, these investors will be looking for certain characteristics in a leader that they like to see.

The problem is that many entrepreneurs focus on selling their product or service without taking the time to sell themselves as the right person to lead the company. 

You need to showcase your leadership qualities and why you’re the right person for this job. 

It can be hard for an angel investor to have faith in your business if the person who is running it is a poor fit, as this is a severe risk to their investment.

Reason No. 7 – You Don’t Know Your Competition

If you don’t know who your competition is, then you probably won’t have much of an idea about the features and products that your potential customers are looking for. 

There’s a lot of information out there about how to do market research, but one of the most important steps is just talking to people about their needs. 

If you can talk to actual customers and get an idea of what they want, you’re going to be in a much better position than if you just guessed at those needs based on your own experience.

Reason No. 8 – Your Presentation Is A Mess

You’ve done your research, you know all the talking points, and your confidence is high. You’ll certainly impress any investor with your knowledge and passion for the project. 

Unfortunately, these things will not make much of a difference if the presentation itself isn’t well-organized and easy to follow. 

The best presentations use bullet points when possible, keeping each point concise and to the point. If a graph or another image can help support a point you’re making, then it’s always a good idea to add it in there as well.

It’s important to maintain a professional image from start to finish. 

That means being sure that no typos make their way into the final product, so it helps to have someone proofread every slide before you use it for your pitch. One small typo can throw off your entire image and affect how you look to potential investors. 

Of course, typos aren’t usually enough for an investor to walk out of a pitch session right then and there without even hearing what you have to say, but they can indicate a lack of care or attention on your part. 

And while an angel investor might be willing to overlook small mistakes here or there if they believe in your project or think you’ll make them money, they won’t take kindly if they see that you’re treating something as important as an investment pitch like it’s an afterthought.

Reason No. 9 – Be Respectful Of An Angel Investor’s Time

If they invite you to stop by the office for thirty minutes, don’t take up more than thirty minutes. If you’re asked to phone in at 3:00 p.m., be sure to call at 3:00 p.m., not 3:05 p.m.

Follow through on commitments you have made with other people in your professional network (including potential customers). 

No one is expected to meet 100 percent of these commitments all the time, but a pattern of missed commitments will make it difficult for someone who is willing to invest in your business to trust that you are capable of managing their investment wisely.

Reason No. 10 – Always Keep Working To Improve Your Pitch

After you’ve met with an angel investor and received feedback, head back to your office or home workspace, and think about what you could change about your pitch to make it better. 

Don’t get discouraged if an angel investor turns you down. In the world of business, you should always be prepared for rejections. 

Remember that even if one person or a few people turn down your proposal, it could be for any number of reasons that weren’t related to your company or your idea. 

Perhaps the investors didn’t feel like they had the necessary capital at that particular moment, or maybe they weren’t confident about investing in businesses in your industry at that time. 

Whatever the reason is, you should not take it personally. Taking key lessons from each proposal will bring you closer to finding the best investor to back you and your vision. 

If possible, ask the investor for suggestions on how you can improve things, whether it’s the way you talk about yourself as a representative of the business or changes to the structure of your presentation. 

Then, make those changes, and practice your new pitch a few times until you’re confident that it’s the best it can be.

When you’re ready, try pitching to another angel investor or even a group of them. The more practice you get, the better your chances will be of attracting the right investors for your business.

 

To Wrapping Things Up

Jumping into the world of startups and entrepreneurship is not for the faint-hearted.

However, as long as you arm yourself with the right vision, skills, the right team, and someone to back you and your idea, then you are taking the first steps to success. 

If you’re not able to answer all of an angel investor’s questions, or if they feel like you don’t have a clear market for your product, then there’s a good chance they’ll walk away from your proposal. 

Make sure you do your research and understand the legal requirements for starting your business before asking for money, and always present yourself and your business in the best light possible. 

Keep pitching until you get it right – it could mean the difference between success and failure for your new business.