As the Chief Investment Officer of a Family Investment Office, I get the privilege to interact with many entrepreneurs seeking funding from our clients

I have met at least 40 teams over the last one year and our clients are lead investors in 5 very exciting companies.  (www.bibox.in, www.primaseller.com, www.allizhealth.com, www.brunhealth.com and www.urjas.com)

As a cultural trait, Indians find it hard to be direct.  So you may not realize the real reason why you have been denied funding.   Here are the 5 key reasons why we have declined to participate.  Of course this list is not exhaustive, but hopefully you may find some use for it. 

• Marginal product/service idea:   The idea is marginal and is basically replicating an existing business model. Most commonly heard these days is “Creating an Uber for XYZ”.    Communicating an idea simply is key.  If one cannot understand in a minute what you are trying to do, very unlikely they will back you.  Use of jargon, example “platform strategy”, implies lack of preciseness in your thinking.  One also needs to be clear of what consumer segment your idea is directed at, and broadly estimate how large the market for your product/service offering could be.   A great idea with a narrow market or very dispersed users is unlikely to be able to scale into a viable business.

• Poor understanding of basic economics: You must understand basic financial terms such as Gross Margin, Variable cost, Fixed costs, Break Even point, Working Capital.  As an investor, I need to be on common page with you on basic economics and if we don’t speak a common language, I would prefer out.  The risk to the investor is that he is supporting a cool concept, but which is financially unviable, or one that will run out of cash far quicker than the entrepreneur thinks.  Many entrepreneurs underestimate importance of Working Capital – a profitable business could run out of cash because customers don’t pay when invoiced.  The challenge for B2C start-ups (FMCG, Packaged food etc.) is most acute as they need a very long runway to break even and the investments required to build brands and create distribution are often significantly underestimated. 

• Too high initial ask:  You will be lucky if your first or second cheque exceeds 2 Cr. Your first investors should ideally be prepared to write a second cheque if things are broadly according to plan (Note: our clients have advanced/offered second round investments to 3 of the 5 start ups above) .If you are asking for 5 Cr, very unlikely you will raise the money unless your model is already fairly developed and accepted by the customer.   You need to be more realistic by looking at the problem from the investor’s perspective. The first round money should be to advance your progress, not to seek financial security.   At the time you are raising your first round, every idea is an unproven concept with high risk of mortality. Every start up team needs to prove they can work together, many people realize that the pace of entrepreneurship is not for them.

• Too little skin in the game: You need to have made “some progress” on your own dime.  A part time co-founder is bad news.  Saying you will quit your job once you get funding also raises red flags.  Entrepreneurship requires significant self-belief – you cannot be seen hedging your bets. The salary you propose for yourself is a defining moment in the Yes/No decision.  Entrepreneurship also requires postponing gratification.  You are not doing the investor a favour by taking a cut in your salary, rather, you are minimizing dilution for yourself and stretching resources to the maximum before you raise your next round (at a higher valuation than the first).  Comparing what salary you will draw now with what you did earlier as a salaried employee is missing the point that you are now an owner and not an employee.   

• Not radiating trust: The essential bet is on people.  Very few plans are implemented as originally thought out.  Can you be trusted to spend our money judiciously? How you conduct yourself gives an inkling on what we can expect: Are you too casually dressed for the meeting? Did you come on time? What are your personal motivations to be an entrepreneur? What role do you see for investors? Do you listen to contrary points of view with an open mind? Do you talk about challenges as openly as what is going well? Do you give space to your other co-founders?  What ESOP pool do you propose for your team? Do you get irritable with repeated queries? Are you so much in love with your idea that you refuse to see the risks?

Never before has so much money been available to entrepreneurs in India.   For those with good ideas, humility and self-belief, an angel investor is waiting somewhere for you to find him/her.  If you find the right investor, whether your business is a success or not, you will find the entrepreneurship experience enriching.  Don’t give up the pursuit of your dream