When you're seeking investment for your startup, it's easy to focus on what you need—capital, connections, or advice. However, have you ever thought about what investors are concerned about when considering your business? Investors face significant risks every time they decide to back a new venture, and understanding these risks can help you secure the funding you need.
Here are the four key risks every investor evaluates before making a decision:
1. The Risk of Losing Money
The most obvious and significant risk for any investor is financial loss. If your startup fails or doesn't perform as expected, the investor could lose their entire investment. This is why they are so careful with where they allocate their money. As a founder, it's crucial to clearly demonstrate how your business will mitigate this risk and deliver returns.
2. The Risk of Losing Time
Investors aren't just concerned with money—they also value their time. Many investors like to play an active role in their investments, offering mentorship or strategic advice. When they choose to invest in your startup, they’re committing their time as well. If your business doesn't succeed, the time they spent could have been better invested elsewhere. Show investors that you're serious about time management and results, ensuring their time is well-spent.
3. The Risk of Damaging Their Reputation
Reputation is a critical asset for investors, particularly in close-knit industries or networks. If an investor backs a business that fails or generates negative press, their own reputation can be tarnished. This damage can occur publicly or within their social circles—be it colleagues or friends. To minimise this risk, show investors that your business is reputable, transparent, and that you have a plan for navigating potential challenges.
4. The Opportunity Cost of Choosing Your Business
Investors constantly evaluate the opportunity cost of their decisions. By choosing to invest in your startup, they are foregoing other potentially lucrative investments. For example, an investor could have chosen a safer or higher-growth opportunity elsewhere. This is a major factor in their decision-making process. It’s your job to convince them that your business offers the best potential return for their capital.
Conclusion:
Understanding these four risks—financial loss, time loss, reputation damage, and opportunity cost—can help you tailor your pitch and build trust with investors. By addressing these concerns upfront, you not only increase your chances of securing capital but also build stronger, longer-lasting investor relationships.
