common mistakes startups make when applying for funding

Common mistakes startups make when applying for funding. @Abhishekshah

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.

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 sustainable

competitive advantage will be.

If you’re trying to raise funding for a

conventional 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

1. No WOW! Factor

for

1 Be sure your business has that x-factor

2

understand what industries or types of businesses VCs are willing to fund

a

Do your Research

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 VC

funding 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.

2. Expecting a 24-hour turnaround

For the best chance of success

for

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 fund managers 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 respect entrepreneurs who have

risked their own funds and resources to get their big idea off the

ground.

For the best chance of success

for 3. 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 research

reflecting real data to back the financial

projections.

They want to fund entrepreneurs with an in-depth understanding of

the market . . .

both locally and internationally.

For the best chance of success

for 4. 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

Too few entrepreneurs have a clear

understanding of how much funding they

actually 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 you return to the market for

more funding without having made significant

progress.

For the best chance of success

for 5. 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

Appitive.com