Ever wondered why certain startups consistently get more funding than others? or why investors keep putting their money in certain startups? Quite a number of startups received funding in 2020. Some of them received more funding in 2021. Well, that may be as a result of a few factors that will be extensively broken down in this article. A typical entrepreneur is always looking for ways to grow his/her business but, that can’t be done without money.
Hence why it seems like entrepreneurs are always looking for money. if you take time out to study a business founder, you will observe that; It is extremely difficult to find people to invest in a business. Not because there aren’t people with money who are looking for businesses to invest in, but because investors are very aware of the fact that about 20% of startups fail in the first year, 30% fail in the second year and by year 5 about 50% of them are completely out of business. Hence why, investors are automatically cynical and doubtful.
Now the big question is; what are certain startups doing right or doing differently that attract investors while some aren’t? I am going to answer this question by starting with a simple and popular quote;
As simple and as basic as this quote may seem, it is one of the major reasons why a lot of investors hold back their money, simply because what you are pitching to them is incomprehensible and is beginning to look like a hard sell.
To further answer the big question I’ll share with you excerpts of a conversation I had with a friend who started a business and shut it down after 1 year because he was unable to get investors. Some of his major learnings are:
Founders passion and experience:
Passion is easy to be found in any startup founder, I mean they are building a business from the ground up, it is only logical for them to believe in what they are building. However, many of them struggle to take NO for an answer and keep going because they believe out-rightly in what they are doing. Also, investors want to know how much of your own money have you put into the business as this is a major indicator of passion. You can’t ask an investor to put ₦50,000,000 into your business when you have barely put ₦1,000,000 in it. Experience is also critical to investors. it will be difficult to sell what you don’t have experience in.
For every investor, utilizing the opportunity and mitigating risk is critical to their decision-making process. They must be able to interpret the financial feasibility of your startup and the growth potentials. In my friend’s case, he had this, but they couldn’t prove beyond a reasonable doubt so they pulled out.
Meaningful market size:
In many cases, especially these days many startups try to break into a saturated or monopolized market with disruption as their game plan. well, so far it has worked for a few, but it didn’t work for so many in the end, my friend is one of them. That’s why in-depth market research is highly important to ascertain what share of the market can easily be acquired. if you can’t clearly identify your market size investors will immediately withdraw any possibility of providing funding.
Competitive advantage and product differentiation:
This certainly has to be clear in your pitch especially when you play in a saturated market. Most startups are entering existing marketplaces. What then makes you different? Making this clear enough will get investors on board easier.
Investors need to have a holistic grip on what your business process is. They need to be sure that the quality of people you are working with are people that can move the business forward. Knowing fully well that startups can’t hire adequate numbers of staff, they will want to know you have sufficient key employees with the right expertise covering the most important areas of your business
How much do I need to invest, and when do I have to invest it? How much will I get back, and when will I get it? These are critical questions that need answers when investors ask. The easiest way to answer them is by providing a detailed financial projection model that shows income, expenditure, assumption behind the model, etc
P.S: Continuous search for the right connections, by proper networking or a third party with the credibility that can introduce them to the right person who has money to invest can better your chances of getting funding. it is not guaranteed but, it can improve your chances.
Unlike my good friend, he wasn’t able to convincingly string these requirements together to get investors on board which led to the eventual demise of his business.