Zombie Investors: How to Identify And Avoid Them in Your Startup Fundraising Journey
Hello, dear readers! It’s your friendly DT for the first time on this Medium. I’m thrilled to bring you purposeful commentary and colorful insights on anything and everything, whether it’s thought-provoking or just plain fun.
On to today’s topic.
Today, we’re going to talk about a phenomenon that seems to be on the rise — zombie investors. Yes, you heard that right.
Zombies are no longer confined to horror movies, they’ve now invaded the world of finance. But fear not, for I am here to guide you on how to avoid falling into the clutches of these undead investors.
Zombie investors can be a real threat to startups and entrepreneurs, especially those who are seeking funding for their business ventures. These investors may not have the capacity to invest in your startup but will waste your time and energy by showing interest in your ideas, taking meetings, and asking for follow-up meetings and materials. It is important to recognize these investors and take action to protect your business.
Or worse.
These are people who invest in companies that are on the brink of bankruptcy or are particularly struggling, hoping to make a quick buck when the company bounces back. They want to ride on ‘get rich quick bandwagon’ and scarely add any value to your startup. at best they are vulture like in their attitude and can make matters unbearable for you.
So why are we seeing an increase in zombie investors, you ask? Well, it’s no secret that we’re currently in a period of economic downturn, with a looming recession on the horizon.
When investors are strapped for cash, they’ll go to great lengths to impress their stakeholders and keep their businesses afloat. Some of them even resemble zombies, wandering through the startup world in search of ways to keep their offices running. Others may resort to backing fledgling startups at bargain prices or taking risks they wouldn’t normally consider, paving the way for zombie investors to swoop in like vultures and prey on the most vulnerable companies.
Here are 5 tips for identifying and seeing off zombie investors.
Tip 1: Check their investment history
Start by researching the investor’s investment history. Look at their portfolio and see if they have made any investments in the last 6 months. If not, it could be a sign that they are not in a position to make any new investments. Additionally, check if they have raised any new funds in the last year. If they have not raised any new funds, it could be a red flag that they are struggling to secure funding.
Tip 2: Look for follow-up investments
Another sign of a zombie investor is when they only do follow-up investments on their existing portfolio. This means they are not looking to add any new companies to their portfolio and are only focused on investing in their existing companies. If you find that an investor has only been making follow-up investments, it is best to avoid them.
Tip 3: Check their investment criteria
Pay attention to the investor’s investment criteria. If they say that your startup is not in the stage at which they do investments, it could be a sign that they are not interested in investing in your company. Be sure to ask them what stage of investment they typically focus on and whether your startup fits their criteria.
Tip 4: Be cautious of fresh fund-raising announcements
Be cautious of investors who seem to constantly raise fresh funds and are ready to invest after a short period of time. This could be a sign that they are not being transparent about their investment capacity and may not be able to invest in your startup.
Tip 5: Test their seriousness
Lastly, test the investor’s seriousness by asking them whether they have the funds to invest in your startup. If they are reluctant to answer this question or dismissive of your concerns, it is a clear sign that they are not serious about investing in your startup.
To see off zombie investors, it is important to be proactive and protect your business. Avoid scheduling follow-up meetings or sending materials without establishing their seriousness. Always ask about their time frame to invest and conduct due diligence. If you feel like an investor is wasting your time or being dismissive, it is best to move on and focus on finding investors who are genuinely interested in investing in your startup.
Happy fundraising! remember to stay vigilant and avoid any potential hazards along the way!
