As entrepreneurs, there are times we must search out investors to make our start up actually start up. Or maybe it is started, but struggling. With an influx of cash, you know that you can take the business to a higher level on the ladder of success.
You may have considered bootstrapping, but you need a bigger economical push than the revenues coming in can provide.
Be it friends or family, angel investors or even a bank or lending institution, the wise investors are going to look closely at details. Wise investors know where good and bad odds lie, and there are certain details that can be considered
- green flags
- yellow flags
- and red flags
In today’s post, I am going to give you 10 red flags that will probably drive investors to politely tell you no. I suggest you keep these in mind before attempting to draw in investors.
Red Flag #1: You Have Not Invested
If an entrepreneur has not put money into their own idea, how can they actually expect an investor to take a chance? Wise investors need to know that you are willing to risk your hard-earned money too.
Red Flag #2: Exaggerations Or Omissions
When providing potential investors data, they will dig deep to see if that data is accurate. Intentionally exaggerating or omitting information can be a huge red flag. This tells the investor if you are willing to do so on the first meeting, what will you do further down the road?
Red Flag #3: Guaranteeing Returns
Investing is risky and investors know that. They also know there is no guarantee they will get returns. If an entrepreneur has the gall to say that he/she will guarantee a certain amount of return. Your data may give some clues but you can never promise or guarantee a return on investment.
Red Flag #4: Too Many Founders
Statistics have determined that if a start up has too many founders (5 or more), it normally turns into a fiasco. People will not agree and there is also the fact that each of these people will need to be paid.
If there are a lot of founders, I believe it is wise to draw up a contractual agreement putting one person in charge who makes all final decisions.
Red Flag #5: No Product Diversity
Start ups that offer only 1 product will probably have difficulty obtaining experienced investors. Unless that product is super amazing or the business plan shows the integration of other products, wise investors will probably defer from investing.
Red Flag #6: No Competition
Never tell a potential investor that you have no competition. There is always competition in one form or another. As a matter of fact, before you approach possible investors, you need to research all possible competitors. This will show the investor you are “on the ball.”
Red Flag #7: Founders Have Poor Credit Ratings
If an entrepreneur can show they are able to keep his/her own credit rating in good standing, it impresses most experienced investors. I suggest that before you approach investors, you have the credit ratings of all founders and explanations if any of those ratings have a number below 700.
Red Flag #8: Excessive Debt
Experienced investors know that if an entrepreneur has an extensive amount of debt, he/she will have a very strong temptation to use the investment funds to clear that excessive debt. While you may say you wouldn’t inappropriately use investment funds in that way, too many people before you have. Excessive debt is an immediate red flag.
Red Flag #9: Possible Legal Or Ethical Issues
If the product or service could be on the edge of being unethical or if there is a good chance there could be legal issues, most wise investors will stay clear. Nobody wants to take chances of that type.
Red Flag #10: The Marketing Plan Is Weak
Experienced investors are going to want to know what your marketing plan of action is. If it is weak…If you are relying solely on paid advertising, it could be considered a red flag.
I will say that the flag could possibly be yellow if the entrepreneur is willing to accept marketing advice and follow investors ideas on ways to market.
Before you approach investors, make sure you have your “ducks in a row.” Use empathy and consider yourself in the position of the investor… Would you take the risk?
Just be honest and upfront and I believe you will have good odds as long as none of the red flags are prevalent.
With that, I want to suggest you pick up a free copy of the book I put together for home business owners. You can get To The Top – Simple Everyday Steps To Succeed Financially just by clicking here.
Thank you for stopping in today. Will you please share this info with your social media friends? I am sure they will appreciate knowing this too.
To The Top!