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Top 9 reasons great ideas fail to raise capital (& how others succeed)
By Dan Brian Why do some great ideas and startups seem to succeed so well and others fail? Will your office be like Google's or is your great idea sending you... Coming up with a great idea is a good start. Step 2 most people get is you need to prove that idea has an audience or market either through clients or subscribers who will buy or sign-up for your product or information that will lead them to your product in future. The next part is where most come unstuck. Entrepreneurs think that Venture Capital firms or Angels will no doubt think the way they do and although they concede it may take a meeting or two to get the idea across they live in deluded hope that the outcome will be the same. That is, them getting a great big cheque.
Most VC's and Angels were entrepreneurs, owners, or managers at some point in their career. However, in their new role their survival depends on applying the harshest of scrutiny to your business and ultimately convincing you, should they like it, that it is worth as little as they want to pay in exchange for as much ownership as you're willing to give. Yes, it's really that simple. You should think about preparing your pitch and/or approach with this frame in mind. Try to target a win win for both of you. Here's a pitch formatted in Powerpoint used by a successfully funded startup called http://wufoo.com. If you'd like to explore the above perception differences in more detail read this blog from one of the founders on how not to pitch a startup. Once you've overcome these audience and perception demands you need to consider the most common reasons we've found for why companies fail to raise funds: 1. Believing they have capital secured, when the money is not in the bank 2. Relying on one large investor or founder without seeking backup sources 3. No budget allocated to the promotion of their Capital Raising and/or starting the Capital Raising process too late 4. Trying to raise capital at ridiculous valuations 5. Poor presentation of their offer to potential investors 6. Not having the right Board in place 7. Poor company structure 8. Not seeking new potential investors, after the initial or seed capital is raised 9. Falling prey to rip off merchants who promise access to a "ready" source of funding bank, investor, or otherwise based on large upfront fee for service arrangements or conversely paying similar advisors too high a percentage of the capital sort can be an immediate red flag for investors The common misconception is because you have a good business/idea/opportunities it should be relatively easy to convince others and therefore easy to raise capital. Just in case you were unsure if this is true or not please visit idea-a-day.com to see how much ideas are worth. Investors or large companies looking to acquire smaller competitors never look out for great ideas - they look for great ideas with proven audience and market and often must also be showing a strong trajectory towards rapid growth. Each time we raise funds for a client or advise on a project we briefly celebrate the achievement and then get straight back to work putting the framework of collateral and company messaging in place for the next round of funding - even if we're not sure they'll need it. Keen to hear some of your opinions or stories on why some are getting ahead while others languish? Email me or post comments on http://prlinked.com
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Template you can cut and paste: A news release, like a news story, keeps sentences and paragraphs short, about three or four lines per paragraph. The first couple of paragraphs should answer the who, what, when, where, why and how questions. The news media may take information from a news release to craft a news or feature article or may use information in the release word-for-word, but a news release is not, itself, an article or a reprint. The standard press release is 300 to 800 words and written in a word processing program that checks spelling and grammar before submission to PRlink. This template is 519 words. The ideal headline is 80 characters long. PRLink will accept headlines with a maximum of 170 characters. PRLink recommends writing your headline and summary last, to be sure you include the most important news elements in the body of the release. Use title case in the headline only, capitalizing every word except for prepositions and articles of three characters or less. The rest of the news release expounds on the information provided in the lead paragraph. It includes quotes from key staff, customers or subject matter experts. It contains more details about the news you have to tell, which can be about something unique or controversial or about a prominent person, place or thing. Typical topics for a news release include announcements of new products or of a strategic partnership, the receipt of an award, the publishing of a book, the release of new software or the launch of a new Web site. The tone is neutral and objective, not full of hype or text that is typically found in an advertisement. Avoid directly addressing the consumer or your target audience. The use of "I," "we" and "you" outside of a direct quotation is a flag that your copy is an advertisement rather than a news release. Do not include an e-mail address in the body of the release. If you do, it will be protected from spambots with a notice to that effect, which will overwrite your e-mail address. "The final paragraph of a traditional news release contains the least newsworthy material," said Mario Reland, member services director for PRLink "But for an online release, it’s typical to restate and summarize the key points with a paragraph like the next one." |
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