Any investment unless it is guaranteed by the business to bear the losses of the investors is termed to beared by the investor in case of the failure of the business. No Investor is going to invest in any business unless they see the returns and have done complete analysis of your business and the risks associated with it. In case of failure of any business,it’s assets are sold to strike off any borrowings or loans on business,followed up by compensation to employees etc.
Usually investors come into play when the startup has gained some traction and has some Business, is making some revenue , has customers, or the projections are so good that is worth the risk, which means that the founder has already invested some of his money, time, effort, and so on. Usually it is considered as an investment loss, meaning that the same way that you expect to win, you also expect to lose. However, it all depends on the type of agreement between the two of you, before you sign the investment papers.
Common Problems:
Lack of capital
People often underestimate what it takes to build a business by a very large margin. This holds true especially for the first-time entrepreneurs.
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Too early or too late
You may be entering too late a market which is already captured by big players, or you could be too early like launching ecommerce 10 years back.
Poor demand estimation
Your idea might just be a novelty and may not address a big pain point. One must estimate if there are enough people to buy the product.
Lack of core skills
People get into areas that are not their core expertise such as a techie getting into a gourmet chain or a chef getting into last-mile food delivery.
Poor business model
While it’s rare for the first business plan to pan out the way it is written, not having a clear business model increases the chances of failure.
Spat between cofounders
Starting up is like the dating period when you see only the best aspects of each other. But startups flounder when tough times come up.
Shoddy marketing
Entrepreneurs, especially techies, underestimate the skills, time and money needed for marketing and customer acquisition.
Back-seat driving
While it is important to be open to feedback from investors, board members and mentors, back-seat driving can be dangerous.
Neglecting customers
Customer service is the job of the founder and chief executive. If the founders are busy raising money, they might push customer service to junior levels.
Lack of focus
Entrepreneurship is hard and tough. By having part-time founders, it gets even tougher.
“Like having a child, running a startup is the sort of experience that’s hard to imagine unless you’ve done it yourself.”
–Paul Graham
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