Startup Investor Red Flags

Many startup founders dream of being funded at an early-stage. But, it might not all be sunshine and rainbows..

You need to consider factors like dilution, not over-bloating your startup, and also a trust factor of the given investor.

There’s a slight stigma when talking to investors. Most people think the fear of failure comes only one way. Startups failing investors. If only this was true..

Just try googling “red flags in startup investors” — all you find is information on what investors should avoid when investing in sketchy startups. Who is looking out for us, founders?

Many investors fail startup founders on a daily basis. To avoid this, here are some red flags you should look for when accepting offer from an investor.

Today at a Glance:

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Red Flags in Investors

Pressures you to accept more money than you needed

When an investors sees a great potential in you and your startup, they try to increase their potential outcome. Sometimes, the number might be so crazy you feel like to decline or re-negotiate might be the biggest mistake you ever make.

Approach carefully. Balancing the greed for money, and keeping the majority in the company is not an easy task. General rule of thumb is only take as much as you think you need. In this scenario — less is more. Worst case scenario, you run out of money and raise more later. If there are lines of investors throwing money at your startup, chances are they will still be there in half a year.

Unrealistic expectations

You showed the investor a TAM for your startup. He wants to see you capture the first 10% of that market in the first 6 months. Huh?

Red flag — either talk him out of it explaining how unrealistic he sounds, or run away. Investors looking for the instant win rather than a sustainable growth will be more harmful than helpful to your company.

Remember, hockey stick projections look great on paper, but they rarely reflect reality. A good investor understands that building a solid foundation takes time. They should be pushing you to set ambitious yet achievable goals, not forcing you into a growth trajectory that could burn out your team and resources.

Micromanagement tendencies

With the rise of founder mode, micromanagement seems to be the cool thing. Brian Chesky and Elon Musk both do it — and they are both famous and well off. Surely, it must work.

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