Saturday, 19 March 2016

5 Reasons why small business fail at raising venture capital


Do you have a small business but unable to attract investors? Have you given up trying? Read on. This article might be of help.

Venture capitalists(VCs) are investors with the primary aim of making profit from their investment. The venture fund contibutors will never contribute to any outfit if it's established that there wouldn't be return on investment.

A smart investor critically access The investment options and choose the best alternative.

These are some of the reasons why your efforts at finding an investor is failing:

1. Founders Equity share split
Small businesses faced several challenges at its start-up phase. Few people actually figured the implications of ownership structure as a problem.

Many founders in some cases avoids a scenario where people might say they are greedy. Therefore, summarily goes with 50-50 ownership structure with cofounder.

This might not be a problem initially. However, research by Harvard Business review discovered that such business rarely attract venture capital.

The research result published in the article titled 'the very first mistake most start-up founders make' considered fouders equity split between 3700 start-up since 2008.

The research found that splitting founder's equity equally is a sign of internal crises and poor negotiating skills by the business top leaders.

Venture capitalists most case have hundreds of investment options. Once they discovered a red flag, it will be the irrespective of how beautiful the business idea.

The fifteen years research discovered that companies that has unequal equity spilt structure perform better at a later  stage.

This is because most of the 50-50 equity share small business made that decision at its start-up phase. Some cofounder are not even ready to quit their day job to work full time with the new start-up. It means as the business progress,  the founders will increasingly dissatisfied and working together could become practically impossible.

Small businesses that delayed  equity share split always arrived at a better and unequal splitting formula. In most cases, the ownership share is determined by the contribution of each founder to the success of the business.
Most case that venture capitalists indicate interest to invest, the first condition will be to re-due the ownership structure which normally leads to a conflict between the 50-50 owners. However, the start-up that have unequal share always display more maturity and better negotiations skills which is a yes for venture capitalists.
Relationship can be created online or offline.

2. Inability to create Relationship
Evan BaeBaehr, the founder of outbox and Teneo, says " many founders fall into the same trap: they focus all their energy and resources on building a pBaehr, the founder of outbox and Teneo, says " many founders fall into the same trap: they focus all their energy and resources on building a product And finding customers, and when they come up air, they realise that they need to raise outside capital. They scramble to craft a pitch, Find potential investors and ask for money- and they usually fail. They end up with no money and sometimes no company".

Creating a relationship before asking for money could take time and in most cases, it's the most patient CEO that win.

There are many strategies that could create good relationship. However, you have to humble yourself and be willing to help otherwise, your direct funding strategy could be rejected at first attempt.

3. Insufficient research about a VC outfit
If proper check is conducted on investors, entrepreneurs could choose the best investor and in some scenario avoid wasting time with uninterested funder.

Venture capitalists have a clear quildline relating to their portfolio choice. Most of them invest in a business that they have sufficient knowledge about.

Encouraging them to invest in another business could be an exercise in futility. Some fund raising team keeps hanging around and wasting their time with wealthy venture capitalists.
Most small business that actually get funded do a good research about their target.

4. Narrow Business Idea
Some small business idea doesn't requires venture capital funding.

For instance, a Micro niche blog doesn't require any outside capital. A business consulting firm doesn't require venture capital. 
Small business founders needs to do a careful accessment of their business, ensuring that it has more room for future expansion and improvement.

For instance, 
Google started as a search engine but later expandedroduct And finding customers, and when they come up air, they realise that they need to raise outside capital. They scramble to craft a pitch, Find potential investors and ask for money- and they usually fail. They end up with no money and sometimes no company".
Creating a relationship before asking for money could take time and in most cases, it's the most patient CEO that win.

There are many strategies that could create good relationship. However, you have to humble yourself and be willing to help otherwise, your direct funding strategy could be rejected at first attempt.

3. Insufficient research about a VC outfit
If proper check is conducted on investors, entrepreneurs could choose the best investor and in some scenario avoid wasting time with uninterested funder.

Venture capitalists have a clear quildline relating to their portfolio choice. Most of them invest in a business that they have sufficient knowledge about.

Encouraging them to invest in another business could be an exercise in futility. Some fund raising team keeps hanging around and wasting their time with wealthy venture capitalists.

Most small business that actually get funded do a good research about their target.

4. Narrow Business Idea
Some small business idea doesn't requires venture capital funding.

For instance, a Micro niche blog doesn't require any outside capital. A business consulting firm doesn't require venture capital. 
Small business founders needs to do a careful accessment of their business, ensuring that it has more room for future expansion and improvement.

For instance, 
Google started as a search engine but later expanded  to other internet high tech related business.

Facebook started as a social network but has gone beyond that.

Uber Taxi is a Taxi hailing business. However, there is room for it to explore other transport related sector.

Venture capitalists prefer investing in a start-up with huge growth and expansion potential.

5.  Stagnant business
Some businesses or product(s) are at its maturity stage. Those kinds of business seldom attract venture capital.
Product lifecycle includes the introduction phase, growth stage, maturity and declining stage.

Any attempt to grow some sectors could result in decline. Such business can only make progress by cost reduction measures-efficiency.

Venture capitalists prefer new and growing business or industry.



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