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October 17, 2016
Small Business Administration, more than 600,000 new businesses are started by entrepreneurs each year.
Only about 1500 are funded by venture capitalists.
What’s this mean for you? It means that your odds are incredibly slim if you want to finance your startup with venture capital.
It also means that if you do want financing, you’re going to have to work hard to convince a venture capitalist to fund you.
To help you have the best shot at funding, we look at what gets you rejected by VCs.
Don’t even bother approaching a venture capitalist without a well thought out and well-crafted business plan.
If you want to start your conversation out right, present your potential investor with a professional business plan. Here are some things to include:
Raising money from venture capitalists depends on your business plan.
This document has one goal, and that’s to sell investors on your startup. You’ll greatly improve your chances at acceptance with a business plan that speaks to the investor and looks at all angles from his perspective.
Venture capitalists often reject startups because they are too new, and they aren’t far enough along.
This is often a serious red flag for investors.
If you are in the idea state of your startup, you can bet you won’t find many venture capitalists wanting to fund you.
VCs usually invest when they have a good idea of what state a startup is in. If you’re in the idea stage, you might be rejected and told to come back later when you’ve got some traction in the market.
So, before you seek venture capital, you should be well past the idea stage of your startup and well into the implementation stage.
You’ll find that early-stage investors want to see strong market opportunity before writing you a check.
You can do this by launching a pilot program or beta product.
What VCs want to see is your ability to convert paying customers. This market traction is crucial as it shows VCs you have the ability to grow past your early adopters.
To avoid rejection, you must be able to demonstrate how your business is different and better than the competition.
If you don’t have a compelling value proposition, seeking capital is basically useless.
Ask yourself if a potential customer would wait in line for your product. Would they find it valuable enough to stick around? If the answer is no, your value isn’t strong enough.
You also want to look at scalability. If your business can’t grow, it again isn’t worth the VC’s while.
These are three of the things that get you rejected by VCs.
Study these reasons, and turn our suggestions into action. Know your company, create a business plan that includes marketing strategy, and you’ll have a better shot when seeking investment from venture capitalists.
Know what investors want and give it to them upfront.
If you get rejected the first time, that doesn’t mean all is lost. Fix the things that bothered them and present your plan again.
Are you a new startup ready to succeed? Are you looking to get your new business off the ground and watch it rise to success? We are here for you. We can help answer your questions and guide you through the process. Outsource your HR duties, finances, payroll and more to us. Contact Escalon today to get started.
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