If you are an entrepreneur looking to raise capital with your business plan and experiencing resistance, you should know why. There are few excuses for going with the ebb and flow of the market to acquire funding if it is needed, as fundamental modification may be necessary before advancing to your funding round. Investment firms and angels often address their concerns directly are direct in responses why they are not interested. However, if your company is not even receiving meetings, there may be little opportunity to receive feedback and you should analyze what the issue is more deeply. This blog post is dedicated to some of the key reasons why have seen deals fail to pass the venture screening process, so that your company may assess your own situation to determine what the cause may be. Of course, we are always standing by to answer any specific questions that you may have about the screening process.
1. You are targeting the wrong investors
Many investment groups have a targeted list of criteria that companies must meet in order to make in through the screening process. Some companies may need to be located in certain areas (E.g. San Francisco, New York), or classified as certain industries (E.g. biotechnology, software-as-a-service). Other elements include the target funding range or business phase. If your company is seeking Series-B investment over $6.0 M from an investment group that only does deals below $500,000, it has nothing to do with your company’s potential. Time and effort should be made into researching the existing portfolio and fund requirements of investors to understand what they would like to see.
2. You have not found your A-Team
Only in very few cases can even a post-money startup afford to hire a former Goldman Sachs associate as their CFO or McKinsey engagement manager as a COO. However, many startups are led by people that have such industry experience and are managed phenomenally well. We have seen many deals fall through because the proper team was not in place and the response was simply to hire the talent required to commercialize. Finding and retaining top talent is the secret sauce of many companies and investors understand this, which is exactly the reason that they are more likely to invest in a diversified team with an outstanding track record for results.
3. The product has not demonstrated its potential
Without a product that has been proven to sell in the actual market, you are essentially asking investors to place their money in a theory. The closer your product is to market and the more credible research supporting its viability, ideally cold hard sales, will increase the potential of your funding campaign. If the product is still in the incubation phase, use Google Survey and recorded focus groups in order to provide unbiased market research. Launching a pilot program or prototype in a limited geography is another way to demonstrate the product’s potential and also gain valuable information to provide your R&D team.
4. The business model is fundamentally flawed
While this is probably the worst case, the nature of a start-up should not perceive this with the same anxiety of the CEO for a fortune 100 company. If a major beverage manufacturer decides to change their market positioning to a premium provider and demands a price the market is unwilling to pay, their business model is fundamentally flawed. Similarly, startups must find a balance between price and quality that works for the market. Fast casual restaurants have demonstrated that there is a place for equilibrium between fast, quality, and inexpensive. However, what would constitute a fundamentally flawed business model in this context is a company that has a higher customer acquisition cost than lifetime value.