No matter how great the idea, it will remain an idea if you don’t have the money to make it a reality. While a few lucky souls like Markus Friend of Plentyoffish and Mike Arrington of TechCrunch might have succeeded at bootstrapping, most entrepreneurs fail to realize their life-long dreams because of lack of funding. SBA and Harvard Business Review have identified “insufficient capital” as one of the main reasons small businesses fail. With the political climate still uncertain and the economy still not picking up as expected, business owners continue to face challenges brought about by financial drought. Great ideas are critical to success, but so is money, and we know money doesn’t fall from the sky.
Unless “Angels” heard your prayers.
Along with startups, venture capitalists, also known as “angel investors,” have emerged from obscurity. Every VC is on the lookout for their next big star. But just because they’re Godsent, doesn’t mean they don’t have the intentions of a devil. They have the wealth and their successes were typically rooted from humble beginnings and serious hard work. Naturally, they want their money to grow exponentially and as quickly as possible.
For these reasons, they are extremely tough to please. Investors are meticulous people, and they could identify a failure when they see one. If you’ve been out in the market pitching until your head hurts, but no one’s still taking an interest, you might be doing something wrong.
Increase your chances of getting funded by NOT committing these mistakes.
1. Being in It Just for the Money
This may sound cliché, but investors are looking to put their money into a company that can make a significant difference in the marketplace. They are on a mission to grow and prosper, but more importantly, they want to help others achieve success just the same. Rather than thinking about the money, think of why you’re starting your company and the good it will do to change people’s lives. Many startups take mission and vision for granted and just go straight to the business model to rake in profits. They do not care who they step on, and couldn’t care less if the people who are working for them are not compensated enough. Unfortunately, some businesses simply don’t have any knowledge of ethics.
Without the drive to fulfill a sound mission, VCs would see you as a bloodthirsty proprietor who quits before the company even achieves success. It’s the easy and profitable way out. But if you have noble long-term goals, you’re creating an impression that you are in it for the long haul. You’re painting a picture of what your organization will be in the future. Like Google and Facebook, successful companies don’t just see profits as their ultimate goals. Of course, with money to spend, the right people on your team, and a good business model, you can achieve almost anything, but there’s an order to it. The business model works because it is built to fulfill a mission, and that is what can sustain the company in the years to come. Investors value this and so should you.
2. When You Don’t Know Your Customers
It’s no surprise that consumers can dictate the success of a startup. If you don’t know what your demographics like or hate, how can you succeed at marketing to them? This is, of course, a major turn off for VCs. A product is worthless if your customers won’t buy it. Without the proper information and the right customer data, you’re set out to fail.
Do your research. Make sure customer research is a continuous project. By knowing what your customers need, you hold the key to a healthy pipeline.
3. When You Don’t Have a Team
The logic that operational capabilities are just as important as the product itself, particularly at the onset, is what investors think about. This experiment conducted with investors resulted in substantial responses veering towards this logic.
Build a great team. Recognize each person’s strengths and nurture them. Having the right people on board helps you realize your company’s goals faster. With motivational tools and a solid management team behind them, employees can make your company successful. Assure your investors that the right people stand by you and that they value the company as if it were their own.
4. When Your Product Is Not Sustainable
Your product must be able to endure the test of new markets, competitors, and other volatile situations. More importantly, your product should be able to stand alone and should not be dependent on another product that is not your own to be successful. Should this be the case, your product will be seen as a minor product that will become obsolete eventually. Investors will look at you as a waste of their time and money.
Build a product or service that answers the needs of major consumers and not just another addition to a market full of “nice to haves”. Otherwise, you’re sending a message that you’re not in for the long haul and just waiting for some form of acquisition.
5. When Your Product Does Not Solve a Problem or Need
Some entrepreneurs think their products are so great that they forget about other essential things, like usefulness to their customers. It is good to get out of the box and build a unique service or product, but if it is so impractical that people just see it as a waste of money, your product will not be successful. Products should be built around customers’ needs. You’re a customer, so ask yourself what products or services will sell. Customer data is a gold mine. With this as a basis, you will know if there is a demand for your product.
6. When Your Team Does Not Have Enough Experience
Investors are not biased towards young geniuses, but they do look for at least one team member who has a lot of experience. Investing, after all, is a risky undertaking. Investors want to be assured that the money they inject is towards a company who has team members with years of proven experience in the industry.
If you’re relatively young, getting a veteran in the industry to be a part of your team is an asset to your cause. On the other hand, you can also hire a consultant to help you implement industry best practices in your operations and customer engagement. This way, you can prove to investors that you are in charge and that you have a set of people who can help make your vision a reality.
7. When You Don’t Know the Numbers
Businesses are built to earn money; that is a given. At the end of the day, you will have to go back to your numbers and tie it to your vision and mission. The numbers prove the success of a substantial part of your mission. Investors will expect a presentation of profits, forecasts, revenues, operational costs, growth and the like. The rest of the requisites are differentiators with other startups vying for their attention.
Be ready with a business plan. Provide a detailed account of where their money will go should they invest. A business plan is documentation of how well you know your customers and the money that you can get out of them. Prepare and make sure that you use accurate figures supported by historical and reliable data.
Do Your Homework Well
Attracting investors to fund your product can be difficult. It takes careful planning, much like building a business all over again. If you need funding, then be prepared to work for it. Consider all points that investors might be interested in–a sound vision, a robust marketing plan, a fantastic product that everyone needs, and a passionate team of achievers working for you. Do your homework well. When presenting to investors, have attention-grabbing talking points. Support your spiel with great visuals and make sure to cite data that can help you convince them into funding your company. Expect investors to ask a lot of questions. By doing your research, you will be prepared for any questions or concerns being raised by potential investors.