Starting a business is a process that requires responsible preparation. In addition to developing a strategy and writing a business plan, you need to think about getting money. Even if your startup is a small project, you need to invest in it. To increase the chances of a successful launch, young entrepreneurs turn to various funding sources for help. These can be government establishments, banks, crowdfunding, investors, etc. If you’re worried about getting rejected and want to understand why startups fail to get funding, consider the information below.
Where to Look for Startup Funding
Almost every young entrepreneur wants to have their own money to start their own business. But, unfortunately, many of them have to look for external resources for large-scale financing. If you are a project founder looking for help from investors or other sources, prepare for three scenarios: optimistic – attracting considerable investments (fast business growth), realistic – gradual development, and pessimistic – where the company does not get the expected result.
According to Crunchbase, global venture capital funding broke all records in the first half of 2021, with over $288 billion in investments globally. It’s $110 billion more than the previous record set in the second half of 2020.
There are several basic options for getting funding and building a startup quickly in 2022:
- Grants. It is money that public or private funds can allocate for social or innovative projects. This is an excellent option for creating an MVP to attract investors on good terms in the future. But grants are aimed at social improvement, so if your project does not positively influence humanity, you may be refused.
- Crowdfunding. Since this option involves a worthwhile project and collecting money from the people, you need to have a creative presentation to back up with facts. Thanks to this, you can get money and a loyal audience that is already familiar with your product or service. If you have already collected money through crowdfunding and have not implemented the presented project, this time, you won’t get material support from people.
- Business angels. Some experienced entrepreneurs are ready to share their resources with startups to make money on it in the future. Choosing an investor who can assist you as a business consultant is essential. Business angels agree to cooperate only when they see the potential in the project and understand that they can make good money in the future. If startups do not have inspiring forecasts, the owners will have to find another way to find an investment.
- Investment funds. It’s an effective way to raise money for startups. Moreover, funds have experienced investors willing to provide further funding as the business grows. You need to show your knowledge and productive preparation for launch to not get rejected. Provide all data and forecasts for the future so that the investor immediately sees their benefits.
Venture Studios. Its founders become full-fledged co-founders of the projects they finance. They independently search for hypotheses, assemble teams to test them and provide them with the necessary things. The venture studio takes only the most ambitious startups that the market has not yet seen, so there are always more refusals than cooperation offers.
To choose the right investment resource and get your profit as quickly as possible, you should carefully research information and not make hasty conclusions.
Why Startups Fail to Attract Funding
Conforming with CBInsight, the second-largest reason startups fail (29% of cases) is running out of funding and personal money.
Those owners who still depend on work in the office and cannot devote the whole day to a new project have the most negligible chances. Also, failure awaits those who don’t know how to correctly present their startup idea and talk about the benefits for investors. Here are four common reasons why projects cannot receive funding.
No trust in you and your startup
First of all, any business is commonly a cooperation of people and teams. A startup can work on product quality for a long time but not keep in touch with investors. In this case, the project’s founders may receive a refusal from financing since no one knows them in the business environment.
It is challenging to get money when no one knows about your startup. Investors would reject you if they were not familiar with your idea in advance. But there is also an exception – companies that left the accelerator. They passed a qualified selection, investors trust them, and accelerator employees have already worked with them.
Remember that teams involved in venture networking with investors, corporations, and other startup founders are much better at raising investment. Be visible to this market and widely known in narrow circles.
Investors don’t like giving money to one person
If you are creating a business alone, then getting investment will be challenging. Unfortunately, investors are commonly not ready to entrust money to one founder. They ask themselves if one person can raise a whole company, and more often, their answer is no. It will be great if your startup has two founders responsible for different processes: technical and commercial. This increases the chances of startups to receive a large amount of money and the loyalty of financial resources.
No IT Technologies
Technology never stops changing traditional business models and helping entrepreneurs simplify and improve their workflow efficiency.
Investors rarely consider proposals that do not integrate digital solutions into the project. Therefore, they willingly entrust money to a startup with IT technologies. Various IT implementations help you use fewer resources, improve the quality of service with less cost, and provide the ability to serve customers. What will help a startup owner at the initial stage to get an investment is:
- MVP. It is a minimum viable product with only the essential features to convey to audiences and investors the underlying values of the product or service.
- CRM systems. Your business and its processes can be handled using one software solution. Utilizing process automation, Customer Relationship Management helps build a dialogue with the customer more efficiently, avoid mistakes in work, and sell more. CRM generates documents according to a template, sets tasks for managers at each transaction stage, sends SMS to clients, creates online reports on all indicators, and calculates services’ costs through the built-in calculator. Also, it tracks important dates (reminds us to renew the contract, issue an invoice for payment, offer assistance, etc.).
- Chatbots. Instead of the clients calling your operator, they can write a chatbot that will immediately answer all their questions and solve the problem. It will save the business owner money and clients’ time.
Digital technology has become an integral part of modern startups. If you implement IT in your business, you will have significant advantages in obtaining profitable financing.
If your team does not accept new members for a long time, this is a strong reason for investors to doubt your growth and development. It may mean that the company stands still and does not use modern innovations to scale the project. If you can’t hire new people right now, describe the reasons for this in your presentation before going to investors. Perhaps they will be able to influence this and help to strengthen its position in the market.
Getting Funding for a Startup is Easy
If you need funding, you shouldn’t sit still and wait for the money to come out of nowhere. Work hard on project recognition and communicate with potential investors. Don’t be afraid to enter a competitive market because you have the opportunity. Do not forget about your positioning and implementation of IT technologies to simplify business and help customers.
And remember that everything depends not only on the idea and growth forecasts but also on the startup owner. A young entrepreneur should be confident and boldly present a promising creation. Investors and funds will not finance if the founder is unsure about the project.
Do not be afraid to create startups that change people’s lives and implement digital technologies. A little perseverance and you may conquer not only your country but the whole world.