Starting up a new business or going for Series-A fund-raising is always challenging, no matter how old you are and how much efforts you have taken as an entrepreneur. Innovative products and business models are the foundations of a promising startup. However, you’ll also need a steady flow of funds, especially in the early stages, to turn those ideas into reality.
Sometimes there is nothing more powerful than the passion and vision of an entrepreneur. But sometimes passion and vision are just not enough. It helps to understand the criteria that venture capital firms use to decide which companies to fund. All investors look for certain critical components while going for SEED Funding or Series-A-fund-raising. If you overcome the below criteria, no one can stop you to go for venture funding, no matter what.
Lack of Personal Capital and No Financial Projections
Funding your startup or business idea is a tough nut to crack. Whether you are approaching a venture capital firm or trying your luck from any other fundraising platforms, you will come across multiple hurdles while in search of funds. Every new business idea, no matter whether it’s for products or services, requires one vital thing: Money. It can take years before a new business is making a profit, but that doesn’t mean it won’t succeed. Every entrepreneur needs to begin with a certain amount of SEED capital to pay for the cost of hiring staff, renting premises, buying or leasing equipment, marketing, etc.
In contrast, young entrepreneurs are just at the beginning of their earning days. Not only do they not have any savings, they are frequently still paying off their student loans.
Lot of Young Entrepreneurs are adamant of having a strong business idea and they think, they will easily get the funding on the basis of strong and compelling business ideas. But, it doesn’t work like that. Glass is more brittle than a nut-shell, you don’t need a hammer to break it. To go for venture funding or Series-A fund-raising, financial projects are highly important. If the idea of developing credible financial projections makes you wince or wail, or if you think it’s a meaningless exercise, you are not an entrepreneur and you shouldn’t ask investors for money. Your projections demonstrate that you understand the economics of your business. They should tell your story in numbers—what drives your growth, what drives your profit, and how your company will evolve over the next several years.
‘Funding your startup or business idea is a tough nut to crack. Whether you are approaching a venture capital firm or trying your luck on a crowdfunding platforms, you will come across multiple hurdles while in search of funds. So, take a deep breath and follow your vision and the elements of the success, letting us help you in a more systematic way with a right plan-of-action.’
Neither Opting Strong Business Plan and nor Considering Market Opportunity
Whether you are hoping to expand a small business with a loan or going for a round of venture capital, you will need a scale-able business model. Investors in particular want to fund only scale-able or ready to scale businesses. Your business model must show the potential to increase the revenue with minimal expenditure in the coming months or years. And this is only possible if you appoint an “Incubator”.
An Incubator will provide you with all essential details about the Venture funding or Series-A-fund-raising. The scale-able business model will be able to increase your profits without increasing your costs at a higher rate. Else, it will be less likely to be invest-able. Your business model should be a scale-able business model having higher profit margin and low infrastructure and marketing expense. In other words, if your business model is likely to result in the over-extension of time, money, and resources, investors will be hesitant to welcome you with open arms.
If you are focused on a product/market opportunity that is not technology-based, you probably should not be pursuing venture capital—there are different private equity sources for non-technology businesses. Venture capital is focused on businesses that gain a competitive edge and generate rapid growth through technological and other advantages. If you are focused on technology, you should be targeting a sector that is not already crowded, where there is a significant problem that needs to be solved, or an opportunity that has not been exploited, and where your solution will create substantial value. Contrary to popular belief, it’s not about how big the market is; it’s about how much value you can create.
Networking and Validation of Interest
When you’re searching for funding options it is important to have those well-placed connections who could suggest your nascent business to a venture capitalist they know, or who would serve as a valuable reference in your hunt for funding. You need to have a web of connections in high places or contacts with successful jobs who would be willing to invest in your business idea. With well-established connections in the business world, young entrepreneurs will find a natural way to promote their products or services.
Moreover, the most important factor influencing investors is validation. Is there good evidence that your solution will be purchased by your target customers? Do you have an advisory board of credible industry experts? Do you have a co-development partner within the industry? Do you have beta customers to whom investors can speak? Do you already have paying customers? What other brand name validators can you offer? The more credibility and customer traction you have, the more likely investors are going to be interested.