Advice when searching for investors

We’ve looked at why people may decide to become investors, and we’ve even looked at some of the forces those investors are balancing when they decide whether to invest in your business or not.

In this article we’re going to look at the same thing, but from a different perspective.

We’re going to look at some of the reasons an investor might choose not to give you their money.

Firstly we’re going to look at the basic figures, that gives us a little context for the rest of the article.

For the purposes of this I am assuming that you are based in the UK, and that your business is in some way in the tech sector.

You’ve done the maths and have come to the conclusion that you need to raise £150k. That’s a pretty typical amount for a company in the early stages of development, but finding that money might be trickier than you think.

Typically UK angels seem to put in somewhere between £5k and £25k as their first investment in an early investment round. This isn’t set in stone, I have seen investors put in £50-100k as a first investment, but it’s a good working assumption.

What that means is that you will need a lot of luck to source your £150k from fewer than 5-6 investors.  Don’t get me wrong, you could hit all the right notes for a wealthy individual and bag the lot in one go. But this would be the exception rather than the rule (It may also not be as great, getting all your money from one investor, as you think, Ed.)

In reality it’s quite possible you will need to convert 10-12 investors in order to get your £150k. More if you’re unlucky!

And the number of potential investors you will need to speak to in order to get those 10 on-board is likely to seem a little dispiriting.

A good business plan, with a proven team and a convincing pitch might get a conversion rate of 10% out of the gate, but it might be a lot less than that. You’ll get better as you go but it could easily take 20 or 30 meetings and speaking to hundreds of people in order to get those 10 signed up.

So let’s do what I said we would at the beginning and explore some of the reasons people might not be interested in your pitch.

The first is that they might simply not understand what it is you are putting in front of them.  If that is the case then they probably won’t admit it and ask you to clarify.  At least not in a way that isn’t making it clear they aren’t interested.  Investors know they are smart, even when they might not be.  And so you need to make sure you aren’t making them feel stupid.

They may simply disagree with the assumptions you have made. Perhaps they don’t think the problem you describe is actually a big issue, perhaps they do but don’t agree with your solution. Perhaps they agree with both but can’t see a potential market.

Perhaps they have simply already invested in a similar business, or just a business in your sector.  Perhaps they have a quota to keep their portfolio diverse, or perhaps they don’t want to help the competition.

It’s possible they have invested in something similar in the past and it hasn’t worked out well for them.  If they have been stung before they are not likely to want to jump in again without some serious convincing. But will they tell you this?

Maybe they missed their last meal and they are struggling to concentrate on what you are saying? It’s been proven that parole hearings that come before the board just prior to lunch are far less likely to be successful. Investment pitches probably aren’t going to fare much better.

Maybe they are bored? You didn’t grab their attention and all they are doing is waiting for you to stop talking and go away. Maybe they hate your shirt, maybe they can see a loose thread on your jacket, maybe they don’t like the shape of your ears.  Sometimes the simplest things cause negative reactions in people and there is nothing you can do about it.

Maybe they are just having a really bad day. Perhaps their dog died that morning, or perhaps they had a screaming row with their spouse.

It could simply be that they think someone else is likely to invest who has more funds available, or someone they don’t want to be associated with.

In reality the list of reasons someone may choose not to invest in your company is practically endless, and there is very little you can do to predict or mitigate those reasons.

So what is the point of this article I hear you ask? 

It’s pretty simple.

You are likely going to have to do a lot more work than you think to get your money.  You will have to talk to more people, attend more meetings, and answer more questions than you thought. You need to be prepared for that.

But it isn’t all doom and gloom. There are start-ups out there that have walked away with everything they need after one good pitch.  Carrie Rose, the founder of Rise at Seven states she got all the funding she needed to create a truly international multi-million pound company from one conversation.

So if you do everything you can to address the forces investors are balancing, and show you are offering a brilliant opportunity to be part of a genuinely innovative, high growth, high profit business you might surprise yourself.

Just don’t rely on it.