Sunday, March 9, 2014

The Most Common Reason Why Startups Fail to Raise Funding

I work with entrepreneurs every day on starting and growing their business.  In addition to building a product/service that the market wants, recruiting a team that is effective, and finding customers, they must also raise funding.  A select few have the funding to start and grow the company but the vast majority of today's startups do not.  They have to raise funding from outside sources and they know it.

The most common reason why startups fail to raise funding is that they don't budget the time or financial resources to do it.  When they ask me for help in fund raising, I ask for their business plan.  In reviewing it I find they have a time and financial budget for building the product.  They also have resources set aside for marketing and selling it. When I ask for their time and financial budget for raising funding, I often receive a blank stare.

The four components of a startup are product, team, customers, and funding.  They budget time and dollars for the first three but many miss the fourth one--funding.

Fund raising typically doesn't require a great deal of financial resources up front but it does take some.  Pitching to angel groups requires application fees.  Putting investor docs in order requires some cost as well.  The cost is not great but a budget of zero dollars makes it harder.

The primary cost in raising funding is time.  It's a near full-time job for three to six months in most cases.  Who on your team is dedicated to the process?  Closing investors is not unlike closing a customer.  You must have several interactions.  For a new company with a new product is almost never one visit and you're done.  You have to go back and show how the product is improving.  Getting the first customer is the hardest and as you gain more users it does get easier.  The same is true with investing from investors.

So if you're starting to raise funding, I recommend you review your time and financial budget and make sure you are prepared for it.

Best regards,
Hall T.