The startup game is a risky business, and for many entrepreneurs navigating the competitive landscape and securing the funding needed to survive is a significant hurdle that isn’t easily overcome. When raising the capital you need to master the art of listening and figuring out what to do in order to shape up a story that will get your startup the financing it requires to thrive. However, there are certain signs or reasons that can tell if your business needs a major facelift. Note that most startups are not fundable ready when they even consider fundraising.
If any of the reasons below reflects the state of your startup, it does not mean you should give up. It means you need to go back to the whiteboard and brainstorm with the feedback you have gathered in order to apply the required corrections.
With that being said, below are 4 reasons why your startup is not funded (from the investors perspective). These should make you realize whether some changes need to be applied.
You are building something that already exists
Building a startup is not about building a product it’s about solving a problem. Founders many times make the mistake of building something that already exists and that is performing well. By adding a few features they think they are different and unique. You need to understand if those features are enough to get people excited.
Normally you want to fill a clear gap in the market and not go after something that is already done and working well where there is no need on the market as it is a problem that has already been solved.
Customers are not willing to pay for your product or service
Nowadays making your first dollar is what matters. Forget about user growth. You need to have users paying you for your product or service. If that is not the case that means what you are doing is not a necessary tool in their lives and just a nice to have. That will make your business a tough one to scale.
You have no traction
Traction can be served in different flavours. In my opinion, traction comes down to growing month over month by at least 10% on one of your key metrics. Traction can be customer sales, app downloads, traffic to your website, press coverage, or something else. The more traction you have, the more likely you will be funded at an attractive valuation. If you are not finding this type of growth then something is missing. Investors want to see progress and if that is not the case it will be hard to convince outside investors to participate in your round.
Investors with money want to see results before funding your startup. Even if you pass the test as an entrepreneur, and you have a solid team, they still want to see that you can engage customers with your ideas. Because, let’s be honest, some ideas just aren’t worth pursuing regardless of how talented the team behind it is. Do you have proof that your potential customers care about your solution? This is your product/market fit, and you shouldn’t seek funding without it.
No competitive advantage
Your business will need to have an edge. Something that will help you in doing things faster and better than the other folks that are already operating in your space. This could be via a distribution channel that you have built or partnerships that you have been able to close that will help you in scaling much faster.
The competition for startup funding is likely to only get more intense as we see more and more startups solving one problem or the other. The necessity of learning from past failures and adjusting your investor pitch to avoid the mistakes that have led many other startups down the road to failure has never been more important. While there are many reasons a startup doesn’t secure the funding they need, it usually boils down to some combination of the points enumerated above and those in this article. If you can prepare for those challenges before entering the negotiation room you will be in the best position to make a positive impression on an investor and walk away with the funds needed to stay in the game.
If you failed to secure funding after an initial round of investor meetings, consider reevaluating where your idea fits or the marketplace altogether. Perhaps the original market is too small or too crowded, but with a slight adjustment, your product could work in a different market.