Why Are The Most Startups Not Able To Raise Funding?

December 08, 2014

Why Are The Most Startups Not Able To Raise Funding?

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The majority of the startups, event those who get angel funding or seed stage funding or investments from accelerators are unable to get follow on funding. Why is it so? When angel investors invest in the startup, they do so after assessing whether the startup will be able to raise follow on capital. That is how they have a chance of getting an exit for their investments.   Why the startups are not able to raise follow on capital despite of advice and mentoring they receive from their angel investors. We analyzed these problems and spoke to investors and startups to understand the reasons behind. And know what we have got some very interesting observations to put in here. The below mentioned were the reasons why startups were not able to get funding from VCs, even when they believed that the opportunity was good and the concept was exciting.

 Reasons for startups to not get funding:

 This is no order or priority, but investors mentioned that they often have seen these reasons where the startups were declined funding:

  • The venture/startup hasn’t done enough to demonstrate that there is a potential growth in the said concept. While focusing on the developing the product, the startup missed out on building the traction as an evidence of the potential.
  • The team has failed to build the skill set and competencies that are required to take the venture  to the next level
  • Lack of in-market validation of the product
  • Poor product or services was another reason for decline

When conversing with the startups, we realized that most of were not full prepared to engage with VCs. Below is the checklist of what we think that the startups should be prepared with. However, there are lot more things that they need to be ready with, but these are absolutely required for getting the follow-up meeting after the initial interaction:

  • Know and understand their investment criteria.  Some might be giving weightage to traction, some to the team, some to the global opportunities, while some just want to have domestic focus

 

  • Be clear about what you seek from the VCs beyond the money. Clearly articulate how they may be able to add value, this will help them understand why this could be relevant investment to them

 

  • Remember startups are competing for the capital with other startups even those who are completely different from your sector. Therefore, it is important to understand the investors the view of the sector while you are initiating the talks for funding.

With the above mentioned guidelines, you will be able to know now why the funding part wasn’t clicking. With necessary improvements you surely be able to get through the funding issues and get your startup business to roll in the market.   Image Courtesy: http://geccgcm.blogspot.in/2012_04_01_archive.html

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