common mistakes startups make when applying for funding
DESCRIPTION
There is a perception among entrepreneurs that a revolutionary idea is enough to secure the venture capital needed to kick-start their businesses. This is simply not true. Here are five of the most common mistakes made by entrepreneurs when applying for VC funding.TRANSCRIPT
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Common mistakes startups make when applying for funding. @Abhishekshah
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There is a perception among entrepreneurs
that a revolutionary idea is enough to secure
the venture capital needed to kick-start
their businesses.
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This is simply
not true
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Here are five of the most common mistakes made by entrepreneurs
when applying for VC funding.
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1. No WOW! Factor
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The first rule in the VC game is that your
business proposition must have an
exceptional differentiating factor.
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You need to know what your sustainable
competitive advantage will be.
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If you’re trying to raise funding for a
conventional business or idea like a franchise or
service business . . .
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VC is probably not the right place to start looking.
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For the best chance of success
1. No WOW! Factor
for
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1 Be sure your business has that x-factor
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2
understand what industries or types of businesses VCs are willing to fund
a
Do your Research
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2 Do your Research
b
Call them first to clarify before applying and wasting both your time and theirs.
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2. Expecting a 24-hour turnaround
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A large number of applicants turn to VC
funding at the eleventh hour as a last-ditch
effort before running out of capital.
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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.
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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.
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2. Expecting a 24-hour turnaround
For the best chance of success
for
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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.
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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.
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3. Touting an untested idea
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VC analysts and fund managers are unlikely to
be swayed on the strength of a business
plan alone.
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For the best chance of success, develop a
working prototype or some basic software.
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VC funds respect entrepreneurs who have
risked their own funds and resources to get their big idea off the
ground.
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For the best chance of success
for 3. Touting an untested idea
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1 Before hitting the VC trail, build that prototype or get your software to a
test group.
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2 Develop a solid business plan that
clearly spells out the potential for your unique solution to a specific market’s
burning need.
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3 Avoid jargon in your business plan, make doubly sure it’s free of errors,
and tailor it to the fund’s specific mandate.
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4. Neglecting the real numbers
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A solid business plan is not based on assumptions.
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VC funds want to see market research
reflecting real data to back the financial
projections.
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They want to fund entrepreneurs with an in-depth understanding of
the market . . .
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both locally and internationally.
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For the best chance of success
for 4. Neglecting the real numbers
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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.
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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.
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5. Lacking a clear development path
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Too few entrepreneurs have a clear
understanding of how much funding they
actually require for the next stage of their
business.
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And sometimes are even unclear about what the
critical goal is that the funding is to help
achieve.
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You lose credibility if you return to the market for
more funding without having made significant
progress.
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For the best chance of success
for 5. Lacking a clear development path
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1 Be clear about why the funding is needed and what it will help you
achieve.
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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.
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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.
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Now avoid these Common mistakes