Why is it so Hard to Fund my Start-up?

Finding funding for a start-up is hard but with so many apparent venture capital funds, crowdfunding, angel investors etc. Why is it still so hard for start-ups to find funding?

Lack of access to investors.

The internet has made it easier to connect to potential investors via social media via Linkedin, Angelist or even Twitter. Unfortunately, investors by their very nature tend not to shout out who they are, for fear of being bombarded by all kinds of suspect opportunities. Therefore, most prefer to receive their deals via referrals. Which makes it hard if you happen not to know any investors! Founders that fall into this category will need to network extensively to build contacts to allow them to penetrate the inner circle of investors’ network.

Non-scalable product or service.

Most investors are looking for returns, so if your start-up is not easily scalable then many investors will shy away from a deal. Some businesses are just not easily scalable and as such, they are less attractive to venture capital, angels etc. Also, investors are looking for huge returns for taking all that risk early on. So usually a minimum of 10x returns on their early investment is required.

No traction.

The dreaded words, “too early stage”, heard by founders. This means you haven’t proved yet that your idea can fly and make sales. Ironically, most investors are risk-averse and like to see some form of traction before dipping their toes in. So, some sales or a ton of user registrations are going to show them that your idea has legs.

Too much competition in the market.

If your product or service already exists in some form or other and you are not bringing huge innovation to the table, it will be hard to attract investors. Many founders underestimate the cost of launching a new business and think they can grab market share from competitors because they are better, cheaper etc. Most investors understand that acquiring customers is costly and takes time. So, if there is a strong competitor in your marketplace investors will probably shy away.

Timing

Your product or service is so new that no one else has done it before. Investors will not like the fact you are entering uncharted waters. Ironically, early-stage investors will want some reassurance that there is a need in the marketplace for your service. Airbnb famously got rejected seven times by investors. They simply couldn’t get their head around the concept. If this is your start-up, you need to work on getting some traction to prove there is a need for your service.

Not solving a problem.

If your product is cool but doesn’t solve a particular problem, investors will find it hard to believe that the idea will work in the real world and sell. It’s important to show investors that there is a real problem that you have the solution to.

You are not in the top 1% of start-ups.

Harsh but true. Unfortunately, less than 1% of start-ups receive funding from angels and even fewer from VC’s (0.05%). The harsh reality based on stats is, most start-ups do not get funding from external sources. Most start with their savings, credit or money from friends and family. 99% of start-ups do not get funding!

With that in mind, investors are investing in a tiny proportion of the deals they receive. Don’t give up but set expectations from the start.

Services like Pop Up World’s Investor Connector allows you to post your pitch deck to 800+ investors at a click of a button, therefore increasing your chances of being viewed by a potential investor.