Raising capital isn’t just about the strength of your pitch, it’s about avoiding the silent killers that make investors walk away. Whether you're approaching angel investors, VCs, or firms in the private credit space, being aware of common red flags can make all the difference between a "no thanks" and a signed term sheet.
Here's a breakdown of the top five red flags, and how smart founders are learning to sidestep them.
1. Unclear or overhyped business model
Imagine this: You open your pitch with, “We’re the Uber for accounting.” Catchy? Maybe. But it’s also vague, and for investors, that’s a red flag.
An unclear business model suggests one of two things: you don’t fully understand your own business, or you’re trying to hide complexity behind buzzwords. For traditional VCs and private credit investors alike, that’s a signal of risk.
How to fix it:
Get specific. Who’s your customer? What problem do you solve? How do you make money? If you can’t answer that in two sentences, go back and tighten your value proposition. Bonus points if you can show how the model scales with measurable data.
2. Unrealistic financial projections
Investors know the difference between ambition and fantasy. Forecasting $5M in revenue in your first year without any users? That’s not inspiring, it’s worrying.
This is especially true for private credit firms, who focus heavily on cash flow predictability. If your projections aren’t grounded in logic, they’ll assume your entire business plan is unstable.
How to fix it:
Use bottom-up forecasting: base your projections on actual market assumptions, sales cycles, and customer behavior. Show your cost of acquisition, burn rate, and runway. Even if the numbers are smaller, being realistic builds credibility.
3. Lack of market understanding
A slide showing a $10B total addressable market (TAM) is not enough. If you can’t explain who your target customer is, how they currently solve their problem, and why they’ll choose you, investors will assume you don’t know your space.
How to fix it:
Dive into your market segments. Who are your early adopters? What proof do you have that they want what you’re offering? Include competitor analysis and show how your positioning fills a gap. Investors—including those offering private credit, value founders who can show they know their niche better than anyone.
4. Weak team or skill gaps
One of the biggest turn-offs for investors is a founding team that lacks key capabilities, or worse, a solo founder trying to wear every hat.
Startups often fail because of execution, not ideas. That’s why even firms in the private credit space assess the strength of your team before committing funds. They want to know who’s behind the wheel.
How to fix it:
Highlight your team’s relevant experience. Showcase complementary skills, product, tech, marketing, finance, and how you make decisions together. If you’re a solo founder, show you’ve surrounded yourself with capable advisors or early hires who plug key gaps.
5. Vague or generic use of funds
Asking for $1 million “to grow” won’t cut it. Investors want to see exactly how their capital will help you hit specific milestones. If they can’t see the link between funding and outcomes, they’ll question your planning, and your leadership.
This is especially critical for private credit lenders, who often structure deals around milestone-based disbursements and financial targets.
How to fix it:
Be specific. Break down how the funds will be used: product development, hiring, marketing, operations. Explain how each investment ties back to customer acquisition, revenue, or product milestones. Clarity shows foresight and fiscal responsibility.
Bonus tip: Be ready for follow-up questions
Even after you address these red flags, be prepared to go deeper. Investors will challenge you—because they want to understand your thinking, not just your slide deck. Be open, responsive, and data-backed.
And if you’re working with private credit providers, know that they may ask for more financial documentation and cash flow forecasts than VCs. This isn’t a bad thing, it means they’re seriously evaluating your risk profile.
Final thoughts: Pitching Is a skill, Refining it is your edge
Every investor pitch is a chance to learn. The more aware you are of what not to do, the stronger your messaging becomes. By removing red flags from your narrative, you build a story that inspires trust, signals competence, and opens doors.
Whether you’re early-stage or growth-ready, seeking equity or private credit, showing investors that you’re prepared, transparent, and self-aware can be your greatest asset.