Common Mistakes Startups Make When Applying For Funding

Common mistakesstartups makewhen applyingfor funding. @Abhishekshah

There is a perception among entrepreneurs that a revolutionaryidea is enough to secure the venture capital needed to kick-start their businesses.

This is simplynot true

Here are five of themost common mistakesmade by entrepreneurs when applying for VC funding.

1. No WOW! Factor

The first rule in the VC game is that your business proposition must have an exceptional differentiating factor .

You need to know what your sustainablecompetitive advantage will be.

If you’re trying to raise funding for aconventional business or idea like a franchise or service business . . .

VC is probably not the right place to start looking.

For the best chance of success for1. No WOW! Factor

1 Be sure your business has that x-factor

2 Do your Researcha understand what industries or types of businesses VCs are willing to fund

2 Do your Research b Call them first to clarify before applying and wasting both your time and theirs.

2. Expecting a 24-hour turnaround

A large number of applicants turn to VCfunding at the eleventh hour as a last-ditch effort before running out of capital.

Securing VC funding is not for the impatient:Business analysis, building the investment case, approval, due diligence, and legal and financial structuring are undertaken with meticulous care and attention to detail.

Plan for a longer process than you imagined as it could take a number of months depending on the deal size and stage of the business.

For the best chance of success for2. Expecting a 24-hour turnaround

1 Don’t leave it to the last minute -- VC funding is more difficult to secure if it’s seen as a last-gasp effort.

2 Plan for the long run -- get to know the VC funds and managers. The vast majority of deals are done through referrals and existing relationships.

3. Touting an untested idea

VC analysts and fundmanagers are unlikely to be swayed on the strength of a business plan alone.

For the best chance of success, develop a working prototype or some basic software.

VC funds respectentrepreneurs who have risked their own funds and resources to get their big idea off the ground.

For the best chance of success for3. Touting an untested idea

1 Before hitting the VC trail, build that prototype or get your software to a test group.

2 Develop a solid business plan that clearly spells out the potential for your unique solution to a specific market’s burning need.

3 Avoid jargon in your business plan, make doubly sure it’s free of errors, and tailor it to the fund’s specific mandate.

4. Neglecting the real numbers

A solid business plan is not based on assumptions.

VC funds want to see market researchreflecting real data to back the financial projections.

They want to fundentrepreneurs with an in- depth understanding of the market . . .

both locally and internationally.

For the best chance of success for4. Neglecting the real numbers

1 Do your own research -- this gives you better direct insight. There is plethora , of online tools that enable you to gather data quickly and affordably.

2 Be sure to do a detailed competitor analysis, where you compare your solution to others on a feature-by- feature basis. Also consider future territories and include relevant data and sources.

5. Lacking a clear development path

T few entrepreneurs oo have a clearunderstanding of how much funding theyactually require for the next stage of their business.

And sometimes are even unclear about what the critical goal is that the funding is to help achieve.

You lose credibility if youreturn to the market for more funding without having made significant progress.

For the best chance of success for5. Lacking a clear development path

1 Be clear about why the funding is needed and what it will help you achieve.

2 You need to determine how much actually need and not how much you think you should raise based on ‘norms’ — the more you raise in the early stage of your business, the more equity you will have to give up.

3 At the same time, make sure you raise enough to get you to the next phase, and work on the funding carrying you for 18-24 months.

Now avoid these Common mistakes

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Common Mistakes Startups Make When Applying For Funding

by Abhishek Shah

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