6 Problems Startups Face When Raising Capital
Written By:
Austin Stofer
People of all shapes, sizes and background resonate with this sentiment. There are numerous reasons why this is the case. Entrepreneurs have full control of their own destiny. It’s a path that allows you become your own boss and make decisions for your business, putting you in the driver’s seat.
Although, entrepreneurship comes with a handful of challenges, which can lead to some serious problems, whether you’re experienced or not. However, as one can expect, young entrepreneurs run into even more barriers. It’s not easy to start a business; it’s not easy to manage a business; and it’s definitely not easy to raise capital to scale a business.
Cash is almost always a need for early-stage companies. For an entrepreneur to start a business, they need money for everything from operations, product management, hiring, office space, and much more.
Here are a just a few of the issues startups face when attempting to fundraise, and how you can solve them…
1. Finding a team
Every team needs three core components: a dreamer, a doer, and a designer. The problem that most startups find is that there teams are heavily unbalanced. Too many founders have all businessmen, all coders, all designers...the list goes on and on. It’s an easy problem to fix, but a hard one to recognize. Know when your team doesn’t have the right diversity of perspectives, and scour sites like LinkedIn, UpWork and places like college campuses to find cheap and passionate talent.
2. Product-market fit
Ah, the classic problem of a narrow-minded founder. Many great “dreamers” are so ultra product focused that they forget to see if the market actually needs their product. This leads to the sad statistic that 90 percent of startups fail, and why the “Uber” model is completely oversaturated. Bottom line, do your research. Take time to analyze the market, interview potential consumers, and study the competition. Spend this energy and save your money.
3. Startup sustainability
Every team wants to sell their company. It’s natural. Don’t we all want to have that big multimillion dollar acquisition? I know that I do. Yet, what investors want to see is entrepreneurs who are willing to run their business for 10+ years. It typically takes 5-7 years to gain real market traction, anyway, so don’t rush to the end and never say the word “exit” to an early-stage investor.
4. Product traction
Hopefully, now that you’re halfway through the article, you realize that you need a good team, a great product, a market that will accept your product, and an attitude that will allow you to run your business for the foreseeable future. Once that’s all in place, you’re ready for something all investors love: traction. Show investors that you don’t need them, but that they’d help take your business to the next level. Do this by getting beta users, gaining pre-sales and, most importantly, recording tons of user feedback.
5. Funding use
Simply put, know how you’re going to use the money. If you’re one of the few founders that is lucky enough to raise capital, have a strategic plan in place of how you’ll distribute it. Investors love to see what you would do if you raised 25 percent of your ask, 50 percent of your ask, or 100 percent of your ask. Like I mentioned, show them you don’t need the cash, but how it would help to scale your startup.
6. Strategic partner
We’re all money hungry. I get it. I’m an entrepreneur, too. The problem is that this leads to many startups raising “dumb money.” In other words, they get the capital, but they don’t get a strategic partner in the process. Money is great, but strategic use of funds is even better. Find an investor that wants to join your team, and shares the same passion as you do for your business.
These are just a few solutions for startups’ issues when attempting to raise capital. The big theme here is to not be too desperate, and instead create a self-sustaining business before you even ask for cash.
