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Why would the investor not like your startup?

by Ekaterina Voronova, from Ekaterina Voronova, on Aug 31
Why so often there are misunderstandings between investors and start-ups? There are lots of explanations from startups’ point of view, but this time we at InnMind decided to ask investors themselves.
Investor survey

After talking to dozens of investors, venture funds and business angels in different countries, Katerina Voronova, co-founder and Marketing Director at, prepared an article on how investors themselves perceive the submitted projects, what criteria they use when selecting potentially interesting start-ups, and also - why so many projects do not get into the investor's portfolio.

The research is still in the process and what you see below if the overview of the first part of it. You can learn more here

If you are a private investor, business angel, representative of venture or corporate fund, investment analyst or someone who is participating in decision making process, we invite you to participate in our survey!

>>>>> Participate in Research <<<<<


Investors are different …

Speaking about investors, we must understand that this notion is very general - here we should distinguish between a private investor, a business angel, a venture or corporate investor, and others.

How do they all differ? Almost in everything. Here are a few basic parameters:

  • Interests: a private investor who primarily seeks to multiply his income, cannot be compared to a corporate investor at all. It is him who will first pay attention to the technology, and only after that he will evaluate the current profitability of the project. Sometimes corporate investors do not look at incomes at all, because they are interested in technology to integrate it into their product, they perceive it as an "addition" to their product.
  • Size of the investment: at the initial stages (pre-seed, seed) projects often address to business angels and serial entrepreneurs. On the next rounds of fundraising, they begin to communicate with incubators, venture companies and so-called super-angels (business angels who are willing to invest several times more than traditional business angels).
  • Involvement in the company management: sometimes some investors are ready to just invest their funds and wait for the results. But there is another approach that is radically different: investment with the right to manage, when the investor, even without a controlling stake, plays a significant role in the management of the company and has power in making key decisions.
  • Involvement of personal contacts: one of the "values" that investors can bring to the development of your project (and sometimes it can become a key value) is potential partners, suppliers and customers from their network. Everybody understands that getting financing is very cool, but getting potential customers is much better, because clients will help your business to get on its feet.

Note that these are just examples and common cases, there are no universal rules. There are venture funds that invest only in early stage projects, or private investors who are primarily interested in "social benefits" of the project, and therefore are already looking at financial indicators.

Who is a startup?

The startup sees itself as a super-mega-unique project that will make this world better, and also bring a huge profit to the founders, all investors and other people involved in the project.

What do investors see? The investor sees the startup as a lot of risks: the risk of the team's breakup, the risk of lack of demand, the risk of strong competition, the risk of insufficient quality of the product or service, and many other risks ... Therefore, the investor tries to foresee all possible variants of future events, calculate risks a hundred steps in advance.

Assessing the possibility of project success, investor always tries to predict the probability of failure. It is the investor who always keeps in mind the percentage of startup failures - in fact, according to various data, from 80% to 90% of projects "die" within 1-3 years after launch.

Therefore, most often investors prefer not to invest immediately into the project, but wait and watch the development of the project for a while. This sometimes leads to the collapse of the project - it does not "survive" without investment, because the funds are necessary for the startup even at the initial stage. Unless you and your co-founders already have the capital to start working and developing an MVP, or your good friend / relative suddenly decided to financially support you.

How does an investor decide whether to invest or not?

There is a widespread stereotype that investors (especially venture funds) are kind of heartless machines analyzing the formal parameters and metrics of startups and based on the results of this analysis, investing into the most "packed" projects.

In fact, this is not true. Most investors in the process of startup evaluation follow exactly the same logic as any other entrepreneurs while selecting potential partners. For them, it is important that their visions coincide and it must be comfortable working together, they want to know the founders of the project in person and understand their motivation and personality and many other things that go beyond the numbers and metrics.

In order not to be unfounded, we at InnMind are conducting a special study Study of investors behavior and decision making process, in which we communicate with dozens of investors around the world, studying their views and approaches to the evaluation and financing of start-ups. The results of the research will be published in October, but now I am are ready to share intermediate conclusions with readers.

If you have no time to read the whole article, here are the slides with the main points: 


Does your client need you?

The main question from the investor still remains the same: about the needs of the market, which startup is targeting at. Is there really a demand for your product - prove it! What is the volume of the potential market - calculate! What is the potential for future growth of the market - evaluate it!

For investors it’s important to see that you are not just trying to solve a user’s problem, but you are able to prove the existence of a need. As well as the fact that you have all the means to satisfy it. The indicator that investors really pay attention to is traction - so, demonstrate that users need your product and they want to use it.

Team matters!

During the years of work with startups we have communicated with a huge number of founders with the most diverse personalities and backgrounds. Most of them were strongly convinced that the prior aspects for the investors are only financial indicators and forecasts, market valuations and other similar things. The team is perceived by the majority as something secondary and important only in the context of the regalia of certain team members.

Therefore, even those few founders who think about how to present a team in a more beneficial way often rely on recruiting employees with "titles" and statuses in their field.

In fact, ranks and regalia are not so important. And (now many will not believe) not all financial indicators are equally important.

Most investors understand that a startup by definition is a lot of indeterminates (remember the definition of the author of the popular book “Lean Startup” Eric Rees about "conditions of extreme uncertainty"). And it is impossible at an initial stage to predict what market share and how fast a project will take after launch.
Then how to assess the chances of success of a particular project? The same way as for any other business: evaluating the founder and the team that are involved into its implementation.

And here comes a whole set of objective and subjective factors that investors are guided by when evaluating the startup team.

Investors look at the ability to make decisions, think strategically, the ability to plan in short- and long-term.

In general, personal charisma and determination of the founders, as well as of the entire core team are taken into account. How much people are "living" the project, how much they identify themselves with the project and how much their self-perception depends on the success of the project. These are the first projects that receive funding.


Many investors are also interested in the founder's’ background and track record, what projects they implemented before and with what result. And here it is necessary to mention not only successful stories, but also failures - after all, founders learn on them! Whether the team attracted investments earlier and how it ended for the previous investors is also an interesting point. 

Some investors at InnMind ask us to specifically inquire about the background of the founders and even collect feedback and assessments from previous investors and partners before deciding to invest in the project.

>>>>> Participate in Research <<<<<

The ideal founder: who is that?

Among start-ups, there is sometimes a thesis that there should be only one founder in the project. Someone argues that this is protection against the dilution of share and responsibility, while others argue that investors feel more comfortable joining the project, where there is only one person who makes final decisions and holds key negotiations.

At the same time, we came to the conclusion that many investors are wary of the single-founder projects. For them, this is a sign of "dangerous" personality traits, such as reluctance to share power and participation in the project, inadequate perception of oneself and one's role in business, inability to delegate and share responsibility, and sometimes simply a sign of narcissism. Therefore, most investors, other things being equal, prefer not to invest in projects where there is only one founder.

We have also asked a question about the qualities that the founder should show in order to increase the chances of attracting investments - and here many investors mentioned readiness to learn a lot and quickly, ability to listen, their "competitiveness" and perseverance.

Investors prefer the so-called growth-hacker, who “live” the project and constantly find new ways to increase the flow of customers.

Investors want to see if the founder is ready to take risks: whether he has invested energy, time and money into his own project or is trying to put all risks onto investors.

When there are several co-founders in the team, they must show that the communication between them passes quickly and smoothly, and not as in the "cabinet of the president," with appointments only at certain hours.

Speaking of the negative qualities - this is the promotion of oneself, not of the project, poor organizational skills. Investors do not like when the founder combines work in the project with the main job - for them it proves once again that the founder is not ready to take risks associated with leaving a stable place, and to some extent this shows a certain level of uncertainty in the project and its profitability.

What else may seem unexpected is that investors do not take the "serial" winners of competitions seriously - does a startup have time to work on the project in between all the competitions? And, again, the main thing in the development of a startup is the focus on potential customers, and the competition is just a way to demonstrate yourself and your project.

Business plan VS Business Planning

Previously, investors required a detailed business plan, now almost all investors with whom we communicated (90%) told us that it is absolutely not necessary.

Instead, they request a package of documents, which includes the executive summary, pitch deck, a brief description of the financial indicators (cash flow) and an indication of how the team plans to spend the received investments.

Even those 10% who still read the business plan do that not in the very beginning of their communication with the project, but at the subsequent stages of more detailed communication with the startup.

Therefore, first of all, prepare for the pitch and a good presentation of the project, otherwise the subsequent stages may not occur…

Metrics: an assessment tool or a profanity?

Many experts, accelerators and mentors continue to "train" startups to present the project on the basis of metrics, convincing them that growth rate, market value and other indicators are the reference points for investors when evaluating projects.

This is really important. But in fact, according to some investors, recently literally every startup in his pitch has been speaking about an incredible growth rate and presented graphs of exponential growth in the user base and market share, sometimes even forgetting to describe what is the essence of their project.

Of course, metrics are important - after all, they will make it possible to understand whether the startup is moving forward or stopped at a standstill. But it's worth remembering that metrics are different and you cannot measure all the startups using the same indicators.

More and more investors are talking about traction. Here you can pay attention to the metrics associated specifically with customers, for example, Customer Acquisition Cost (CAC), Lifetime Value (LTV), and others. Select the metrics that are most relevant for your project, but do not try to chase the general flow and talk about figures that only have a small impact on the development of your project.

By the way, here's a wonderful example of the fact that for different entrepreneurs key metrics might differ.

Where do investors look for startups?

First of all, investors turn to different databases, that contain a lot of projects at different stages of development, in different sectors. Many platforms limit the geography of their projects, which, however, meets the needs of some investors interested in investing in certain markets.

Investors also join clubs, organizations and associations where, for membership fees,  they get access to selected projects, have the right to participate in special events where start-ups present their projects, and expand their network and gain new skills from more experienced investors or get advice from experts and analysts.

Events become the second "meeting place" for startups and investors. By the way, many startups, with whom we communicated, try to go to almost all events taking place in their region. Of course, at some point this will bring the result, but it requires a significant investment of time.

It will be more effective to understand who you are looking for (we have already thought about this in the previous paragraph) and to analyze at which events you can meet with this or that person.

Furthermore, investors with more experience and a wider range of acquaintances in the field of investment do not miss the opportunity to share interesting projects with each other. Whether it's for the purposes of co-investment or in cases where the project seems interesting, but does not fit the portfolio of projects of a specific investor.

Why do investors refuse startups that meet all the parameters of "success"?

Sometimes refusals are received by the projects that seem to fully meet the common requirements of investors (as well as those listed above). Nevertheless, other factors come into place and they influence the final decision.

So, an investor might like your project, but not invest into it, because:

  • The project does not belong to the sector, which the investor is primarily interested in;

  • The project is at the very early stage to attract investment;

  • There is no clear and confirmed business model. Investor does not understand how he/she can make money on this project;

  • Many investors do not like projects like "we do the same, but cheaper";

  • Investor does not see any chance of "getting on well" with investors of previous rounds;

  • Investor can not come to an agreement with the startup on the terms of investment.

In this review, we tried to briefly outline the intermediate results of research on investor behavior when selecting startups, sharing with you the typical comments from investors. I hope this will help you to figure out how to choose the right type of investor, to attract and retain his interest, and what to pay attention when preparing a pitch and presenting the project to the investor. 

This video will also help you to understand the investor better: 

Of course, it is impossible to collect all the advice and consider all the nuances of the investor's relationship with the start-up in one single article. But we continue our research and will try to talk about them as much in detail as possible in the final review in October. If you have any questions or would like to share your experience of communication with investors - leave your comments.

Good luck in the development of your projects!

By Katerina Voronova
Co-founder and CMO at

Note: Full or partial copy of the publication is allowed only with the direct active link to InnMind platform.

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