Many Startups see the daylight by one’s desire to write a new chapter of his professional life. Reasons behind it could be many; from being able to make your own decisions by exploiting the great potential of your ideas to proving oneself there is a better option to corporate matrix. Startups are rarely a one-man venture and it generally takes a group of friends getting behind a concept in order to set things in motion. Some of them would argue the great ideas are born when the vision meets the reality, these are entrepreneurial type. Then there are those with a more scientific approach, the laboratory guy or the inventor.

While the technical prowess of the latter is undeniable, is it always the right choice to have him lead the negotiations with the investor? Or is it the “entrepreneur” who should be at the helm? Arguably “the leader” would be the more suitable epithet to answer this multivariable conundrum. Both can be prove to be great leaders but since leadership is a variable in itself, the one who demonstrates character and credibility would be more effective.

Investment rounds, particularly early stage, are critical to the overall success and investors expect nothing less then having a partner who has their best interest in mind.

Statistically only a very small percentage of startups obtain funding with 1/400 getting funded by a VC and 1/40 through private funds. 25 to 30% of venture-backed startups fail completely at later stage.

Escaping the trap

Product and services not serving a market need lands in first position as reason for startup failure. Running out of cash and pressing on without the right team would complete the top podium. CB Insights

Let’s have a closer look at some early-warning signs a funder needs to beware of before engaging in the fundraising  process. Many entrepreneurs will go through the bootstrapping  phase using friends and family round of financing to help the product concept gain maturity, and establish some initial customer traction before they seek outside financing from angel investors or venture capitalists.

But what happens if there’s no interest from the investor ? Or the meeting with the investor was short and inconclusive?

It could be for several reasons:

  • Lack of team credibility
  • Lack of upfront networking with key investors
  • Poor backchannel references
  • Poor team reputation
  • Targeting of the wrong investors
  • Market target too small or growing slowly
  • Disconnection with the target audience
  • Poorly structured marketing and presentation materials
  • Mismanagement of previous funds
  • Poor capital structure for prospective investors

Before attempting to raise any outside funding, make sure that your company is a suitable candidate to interest investors. If you have a suitable company and a compelling business model, next make sure that you have a communication and marketing plan. It is also recommended to find at least one outside advisor who has domain expertise in your market. This person can be a guide and sounding board for you.

In conclusion, there are a significant number of variables to consider when it comes to choosing the right algorithm and timing for the fundraising process. Addressing the right ones will assure the success of your venture.