Common mistakes startups make when applying for funding. @Abhishekshah
There is a perception among entrepreneurs
that a revolutionary idea is enough to secure
the venture capital needed to kick-start
their businesses.
This is simply
not true
Here are five of the most common mistakes made by entrepreneurs
when applying for VC funding.
1. No WOW! Factor
The first rule in the VC game is that your
business proposition must have an
exceptional differentiating factor.
You need to know what your sustainable
competitive advantage will be.
If you’re trying to raise funding for a
conventional business or idea like a franchise or
service business . . .
VC is probably not the right place to start looking.
For the best chance of success
1. No WOW! Factor
for
1 Be sure your business has that x-factor
2
understand what industries or types of businesses VCs are willing to fund
a
Do your Research
2 Do your Research
b
Call them first to clarify before applying and wasting both your time and theirs.
2. Expecting a 24-hour turnaround
A large number of applicants turn to VC
funding at the eleventh hour as a last-ditch
effort before running out of capital.
Securing VC funding is not for the impatient:
Business analysis, building the investment case,
approval, due diligence, and legal and financial
structuring are undertaken with
meticulous care and attention to detail.
Plan for a longer process than you imagined as it could take a number of months depending on the deal size and stage
of the business.
2. Expecting a 24-hour turnaround
For the best chance of success
for
1 Don’t leave it to the last minute -- VC funding is more difficult to secure if it’s
seen as a last-gasp effort.
2 Plan for the long run -- get to know
the VC funds and managers. The vast majority of deals are done through referrals and existing relationships.
3. Touting an untested idea
VC analysts and fund managers are unlikely to
be swayed on the strength of a business
plan alone.
For the best chance of success, develop a
working prototype or some basic software.
VC funds respect entrepreneurs who have
risked their own funds and resources to get their big idea off the
ground.
For the best chance of success
for 3. Touting an untested idea
1 Before hitting the VC trail, build that prototype or get your software to a
test group.
2 Develop a solid business plan that
clearly spells out the potential for your unique solution to a specific market’s
burning need.
3 Avoid jargon in your business plan, make doubly sure it’s free of errors,
and tailor it to the fund’s specific mandate.
4. Neglecting the real numbers
A solid business plan is not based on assumptions.
VC funds want to see market research
reflecting real data to back the financial
projections.
They want to fund entrepreneurs with an in-depth understanding of
the market . . .
both locally and internationally.
For the best chance of success
for 4. Neglecting the real numbers
1 Do your own research -- this gives you better, direct insight. There is plethora
of online tools that enable you to gather data quickly and affordably.
2 Be sure to do a detailed competitor analysis, where you compare your solution to others on a feature-by-feature basis. Also consider future
territories and include relevant data and sources.
5. Lacking a clear development path
Too few entrepreneurs have a clear
understanding of how much funding they
actually require for the next stage of their
business.
And sometimes are even unclear about what the
critical goal is that the funding is to help
achieve.
You lose credibility if you return to the market for
more funding without having made significant
progress.
For the best chance of success
for 5. Lacking a clear development path
1 Be clear about why the funding is needed and what it will help you
achieve.
2 You need to determine how much
actually need and not how much you think you should raise based on ‘norms’ — the more you raise in the early stage of your business, the more equity you
will have to give up.
3 At the same time, make sure you raise enough to get you to the next phase, and work on the funding carrying you
for 18-24 months.
Now avoid these Common mistakes