Three Reasons Companies Are Not Getting Funding

This week I’m in Honolulu visiting the Blue Startups accelerator and the companies in their latest cohort. As I end my meetings most of the companies ask something that almost every startup asks, “how can I get VCs to invest in my startup?”

It’s a good question. And a complicated one. Here are three reasons that can keep companies from receiving investments.

1. You’re talking to the wrong group

All of our data shows that accelerated startups are getting funded by angel investors – not VCs. About 80% of all funding for companies is coming from angels who live within 50 miles of an accelerator. Why? For one thing, unlike VCs, angels are investing their own money and want to invest it locally. This means angels can make investment decisions quickly, on an individual basis, and want to help companies in their area grow.

While the VC model requires identifying and investing in companies with high growth potential (which usually means substantial investments in companies that already have at least some kind of track record), angel investors are looking to make smaller investments in most cases. Angels are typically investing no more than $100,000 at a time – and are willing to take risks on startups that most VCs won’t touch. A hundred grand may not mean much to a public corporation, but that kind of funding can make or break a startup, as I’m sure you can attest.

But just because startup funds are more likely to come from angel investors doesn’t necessarily mean you shouldn’t pursue VC funding. It’s all about understanding how VCs make decisions, demonstrating why your startup would be a good investment, and then setting your expectations accordingly.

2. You’re not asking the right questions

Startups should ask one very simple question to the investors they meet, “what are you looking for in a company where you invest your money?” Yes, your product or service has to be authentic, impressive and innovative. But some investors also weigh the potential success of the management team just has heavily, if not more so, than the potential success of the idea. But until you ask the investor what they are looking for, you’ll never know.

For instance, there is a fund we love in Boulder, Colorado called Blue Note Ventures. Their General Partner, Chris Marks, only invests in companies with authentic leaders. Without asking Chris what he’s looking for in a company, you would never know what his highest priority is when thinking of investing.

3. You haven’t demonstrated why your startup would be a good investment

I see this especially in Europe. Startups sit down with an investor but don’t have a pitch deck ready to show if they are asked for one. It’s important to be prepared – have a pitch deck on hand and a product you can show. Investors are looking for a startup that has their stuff together, and without a deck or a product to show you’re going to lose credibility quickly. So be very clear about what problem your product or service solves for consumers. Highlight your sustainability and lay out how your company will grow and make money so the investor can see the potential for when they can make their money back, plus some. And have it all ready in a deck that communicates everything well. While this sounds easy, you would be surprised how often all of this actually comes together…

Navigating the rough seas of raising money is tricky and can be very off putting to many startups. But with just a few little changes in your fundraising strategy, you can raise a lot of money.