No risk, no gain; that’s the basic rule of entrepreneurship. While every entrepreneur has their own limits, investors also set limits to identify a viable startup. Therefore, as an entrepreneur looking to attract investors, you have to familiarize yourself with the investors’ limits to evade red flags.
Naturally, any risk level can be mitigated. With a well-thought out plan, you can convince consumers, investors and even your high risk merchant account provider that whatever looks risky to all and sundry is in fact a competitive advantage for your new business.
However, it’s easier if you know what investors consider to be high-risk elements based on past experiences with startups. Here are four scenarios to always bear in mind;
- You run a high-failure-rate business model
The most common sectors include work-at-home businesses, telemarketing, restaurants and social-service providers. For such business models, you need an outstanding differentiator to attract investors as they are vulnerable to failure.
- A startup whose co-founders are newbie entrepreneurs
A competent team should consist of one or two executives who have had past experiences with startups in your business domain. Note that even executives who run major companies are considered high-risk in a startup setup as the challenges faced in each environment differ significantly.
- You sell products that require exhaustive tests to pass government regulations
Certain ventures e.g. new medications or self-driven cars require money-consuming and far-reaching trial and tests as well as bureaucratic approval phases that may last too long. Such niches can be very lucrative for entrepreneurs with deep pockets.
- Huge capital and lengthy ramp-up time required
If your startup requires huge investments and a longer period to; ramp up whatever product you’re manufacturing, establish a supply network, and set up the infrastructure you need, then investors will be hesitant.
To be the investor’s top choice, avoid any business model that mirrors the ones discussed above. Remember, there are several other viable startups and the last thing you want is for a sponsor to drop you for your counterpart.
Electronic payments expert, Blair Thomas, co-founded eMerchantBroker in 2010. His passions include writing/producing music, and travel. eMerchantBroker is America’s No.1 High Risk Merchant Account Provider serving both traditional and high-risk merchants.