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The reason you may not be getting funded

Most people involved in the startup or SME game will agree it’s risky business; and for many entrepreneurs navigating the competitive landscape, getting funded is a significant hurdle.
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The truth is, investors simply can’t open their wallets to every good idea that walks through their door. The ones that do end up getting funded are the ones that have properly demonstrated an idea and how it’ll work, how the business will generate money and why people will “buy” into it.

Many newbie entrepreneurs, finance professionals and business leaders eager to prove the merits of a great idea, make the mistake of entering the discussion with not just an unrealistic value of their company, but also without any traction to their idea. Considering the number of business pitches investors receive, the way to stand out from the crowed is to showcase that the idea works in real life rather than just in a slide deck.

Overall, most investors experience more failures than successes. The number of times investors have lost money vastly outweighs the number of times they have actually seen a return of funded money. But despite this, and the fact that it’s thanks to these investors that a venture can finally launch, many are accusing investors for being greedy and ill-intentioned, and that any terms of investment documents are designed to harm; which is not true.

The fact investors have had to deal with the same problems, questions and issues over and over again have resulted in a standard set of legal forms for investment, making sure both parties are as protected as possible. Of course there are a few “badies” out there, but that’s inevitable in any line of work and life. And very often the horror stories heard are tales spun by those who failed, trying to make up excuses for their unsuccessful ventures.

If you happen to be one of the lucky ones that manage to get funded, make sure to keep costs low as escalating overheads is normally what bring companies to an abrupt end.

Ideally, an investor is looking for a company with a clear and scalable business model they can get behind and help grow so apart from trialling it on your target audience, it’s worth to make use of the various online-evaluation tools available that will help you determine a reliable and defensible value of your startup’s worth before you even enter into a discussion.

One of the most common mistakes made by novice entrepreneurs is failing to understand where their idea fits in the current marketplace. Having a clear go-to market strategy that demonstrates the potential for your company’s sustainable competitive advantage is of utmost importance to an investor. That being said, some entrepreneurs have a difficult time articulating a clear plan to reach a target audience and how to scale it over time.

If you failed to secure funding after an initial round of investor meetings, consider reevaluating where your idea fits or the marketplace all together. Perhaps the original market is too small or too crowded, but with a slight adjustment, your product could work in a different market.

The competition for funding is likely to only get more intense as we see more and more high-profile exits and IPOs in the news. The necessity of learning from past failures and adjusting your investor pitch to avoid the mistakes that have led many other startups down the road to failure has never been more important.

While there are many reasons a startup doesn’t secure the funding they need, it usually boils down to a combination of different factors but if you could prepare for these challenges before entering the negotiation room you will be in the best position to make a positive impression on an investor and walk away with the funds needed to stay in the game.

Also worth remembering is that when you search for investment it’s really important that you get along with your investors as no human relationship ever goes perfectly smooth and it’s the good will between you and your investors that is going to make the difference in these times.

Alexander Kostin of Better Collective

Image: Shutterstock

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Real Business

As the champion of UK enterprise for 20 years, Real Business is the most-read SME website dedicated to high-growth businesses and entrepreneurs. Through daily news, unique insight and invaluable guides we are an essential resource for thriving businesses.

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