Startup Funding: 7 Reasons You’re Not Funded
A startup’s funding is perceived by many investors as akin to gambling since the odds of success are constantly diminishing. Although every entrepreneur or founder is certain that they will succeed, it’s the responsibility for the investors to go beyond self-confidence and find out if they’re willing to risk their money on your business and you.
Your company could become one of the new Facebook, Airbnb or Uber But at some point, you’ll require the help of an investor. Many entrepreneurs find that getting investors to finance their startups is among the biggest issues they’ll have to overcome. However, this need not happen if yourself prepared. To stop this from happening issue, you must know what makes a potential investor pay for the venture or turn in the other direction. This article provides the reasons why financing your business can be an extremely difficult task. You might also be wondering why your brilliant idea hasn’t been funded. It’s not enough to have a good idea.
If one or more of the issues below are indicative of the current situation of your startup, it doesn’t mean that you have to give up. It is a sign that you must revisit the whiteboard to brainstorm the information you’ve gathered to make the necessary adjustments.
In that regard there are 7 main reasons your startup isn’t being financially supported (from an investor’s perspective). This should help you determine the need for changes to be implemented.
Cofounders or talent shortage
Execution is the most crucial phase in every startup, and this is not possible without a strong team. Being an early stage company, you’ll have objectives and milestones that are only achievable with a strong team that is working towards those. The success of the founder of a company is mostly dependent on the people you’ve hired as well as the level of professionalism of the people within your company will determine the speed at which you’ll achieve the targets and milestones.
Investors pay close attention to the team you’ve put in place to execute your plan. You’re only as strong as the weakest link, right? Your top-level team will be scrutinized similarly. You can share the mirror with them and take seriously any shortcomings. Learn to identify the most qualified people for your company.
Investors trust solid teams, more so than they do in concepts. You’ve probably noticed they will always ask your team members about their strengths when you present. If your team isn’t sufficient, it could represent one of the primary reasons for not receiving money for your business. It is essential to invest enough time in building strong teams as much as it is essential to spend time creating a solid business strategy.
A lack of knowledge or experience about your market
Entrepreneurs who think they’ll get funding for their ideas in an industry (or with a client) they have no idea about will be getting an unforgiving reality review. Startups and entrepreneurs who have substantial funding know what they’re speaking about. They’re deeply involved within their field of specialization. They’re familiar with the business. They are aware of the players. They also know what direction the market is heading and how to stay ahead. If you think you aren’t equipped with this knowledge or would not be able duplicate the information when approached by an investor I would suggest switching to a different industry or putting more effort into market research.
Absolutely, you will never introduce a new product and be successful right from the beginning. You’ll need to continuously be attentive to the market and implement whatever adjustments are necessary to bring things working. If you aren’t familiar with your clients or your market, it’ll be difficult to know what you’re lacking in order to produce something truly amazing. If you don’t have this knowledge then how do you convince an investor to support your brilliant idea?
No traction, no funding
Traction can be served with various flavors. My opinion is that the key to traction is expanding month-to-month by minimum 10% on one of your indicators. The term “traction” could refer to sales by customers or app downloads visitors to your website as well as press coverage or anything other than that. The more you can get traction more likely you’ll be able to get financially supported at a reasonable price. If you’re not seeing the kind of growth you want, it is likely that something is not working. Investors want to see improvement and if this isn’t the case, it could be difficult to convince outside investors to join your venture.
Investors who have money need to see the results before making a decision to invest in your business. Even even if you’ve passed the test as an entrepreneur and you’ve got a great team, they need to know if you are able to engage customers with your ideas. Since, let’s face it there are some ideas that do not merit consideration, no matter how skilled the team behind it. Do you have evidence that your customers will care about your product? This is your product/market match and you shouldn’t be looking to raise funds without it.
You operate in a tiny or even crowded market
Even if you’ve got an outstanding team, the market to be tiny will be a major concern for investors. At time, investors will want to see returns, and a smaller market could also reduce the amount of the returns they could earn on their investment.
However operating in a competitive market can be limiting. If you’re not among the thought leaders that are recognized as being at the forefront of your industry , it’s definitely difficult to gain the attention of investors to your company. Investment banks are meeting you as well as all of your competitors . If you don’t possess something that is distinct and distinctive, the competition, your chances of getting financing will be slim to none.
Your financial projections for the future are unreal and not worth your time.
I fully comprehend that financial projections in the case of early stage companies are an uninformed guess. There is no way to know what your future plans are five years’ time. But, realistic projections can assist investors in understanding your business and ensure confidence that you are aware of the way you’re doing. Making sure your projections are accurate can help increase the trust of potential investors.
If you present me with projections that the company will bring 5 million dollars in revenue over the next five years, as does nearly all institutional investors I’ll show little interest. I’d like to put my money into a business that is able to grow rapidly and be a thrilling business. If you present me projections of your business being at $500 million within three years, I’ll consider you to be unrealistic particularly if you’re currently at zero revenue.
Beware of assumptions in your projections that are hard to justify. In addition, if your venture requires a large amount of money before it will be successful, it will cause a lot of investors to be turned off.
Unproven business model
It’s not enough to be able to prove that the market is interested in your idea. You must prove that they’re willing to give you money for it. There was a time in late 90’s that entrepreneurs could earn millions of dollars using an internet domain name and “eyes,” but had not knowing how to actually earn money. It was the dot-com bubble and it’s now.
In today’s startup-focused investing environment, you will discover examples of large-scale financing being offered without a feasible business model. In general, however you need to provide any kind of business model evidence’. What are you planning to do to make money ? Do you have evidence of this at a smaller scale? If you are unable to answer the question, you’ll never make any claims.
You’re trying to pitch the wrong investors
As you do professionals, the professionals who invest (and individuals who invest in crowdfunding) are also experts in their areas of expertise. If an investor has a thorough knowledge of enterprise software and their business models What would you say the likelihood are that they’ll invest in your food delivery business? Conduct your own research and find investors who are specialized in your field. They’ll be more open to your proposal and have connections to other investors who may be interested too.
Keep in mind that among the top crucial beginning milestones of a successful start-up is the ability to demonstrate its value on the market. Be focused on this aim. When you are looking to raise funds remember that your investors are your collaborators – providing you with advice, guidance and funds to help your start-up develop and endure.