Many business people want to create startups. Many of the startups apply for venture capital. But an application for venture capital funding has to conform to guidelines and procedures and be selected. The process takes months.
Why startup applications for venture capital fail
You need to understand both why applicants fail to succeed and why new businesses fail. Here is a list of the most frequent fatal mistakes that cause a startup’s application for venture capital to be unsuccessful.
The startup needs to research investors and approach the right ones.
No barriers to competitive entry
The startup needs to have an unfair advantage that can be sustained for 2-3 years. Otherwise it may build a new market for others to take away.
A startup needs to have a good business plan. The plan needs to inspire the potential investor more than the other business plans that he is considering.
Insufficient capital due to inadequate planning
Many times a startup fails before launch due to inadequate funding. In addition sometimes the timing of cash receipts and expenditures is not considered when budgets are planned. If they were planned properly, they must be executed properly. Capital expenses must be understood and provided for.
Product Development without prospect involvement
Investors are more comfortable if prospects have been involved in the product development process. Then there is a higher probability that customers will purchase the offering.
Overly optimistic view of market demand
The startup needs to know the target market well enough to understand market demand for the new offering.
Lack of management skills
In many cases the successful startup teams include experienced executives who understand management and sales. Investors look for this.
Failure to utilize appropriate advisers
Early stage investors expect that an early stage startup will have a range of advisers who understand management, markets, sales, technology and other relevant topics.
The startup needs to understand how to accomplish the marketing that will result in the first sales of a new product of that type to that market.
Too few team members or over dependence
You need to have a balanced team for your specific situation. Further, you can not depend too much on one person or on success at a small number of unique events. You can not plan on luck.
Lack of appropriate decision making
The leadership must have good decision processes that are executed in a timely manner.
- 3 reasons your startup is struggling to raise venture capital
- 4 Things Your Startup Needs to Attract Venture Capital
I have been amazed how many startup CEOs trip up with the “Wrong VC.” You have to do your research and this is one area where research will really pay. You can’t just approach every VC out there, you have to find out who’s most appropriate for what you do. I believe every item on this list will prove valuable to a startup, either just starting out or about to embark on a new phase.