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Updated on: Wednesday, September 29, 2021, 04:31 PM IST

Five mistakes first-time entrepreneurs make while seeking funding

An entrepreneur with a business idea doesn’t always have access to money and business mentorship. That’s where Venture Capitalists (VCs) come in./Representative image |

An entrepreneur with a business idea doesn’t always have access to money and business mentorship. That’s where Venture Capitalists (VCs) come in./Representative image |

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What is the one important thing that has the power to convert ideas and passion into a profitable business? Funding. According to the CB Insights and Autopsy Research of 368 Failed Startups, 37 percent of startups failed as they ran out of money, highlighting that an appropriate amount of funding is crucial to keep the business running.

An entrepreneur with a business idea doesn’t always have access to money and business mentorship. That’s where Venture Capitalists (VCs) come in, and no first-time entrepreneur should jeopardize the opportunity to attract a source of a potential investment by making avoidable mistakes.

Let’s take a look at the most common mistakes that detract VCs from qualifying a business idea.

Not checking for alignment while shortlisting prospective VCs

Venture Capitalists are one of the key foundation pillars of an early-stage business. It is important to choose the right venture capitalist to support your business ideas, which many entrepreneurs may fail to do. Upon finalizing the business model and the business plan, entrepreneurs should identify the right kind of investors – whose interests and investment thesis align with the sector and the stage of the entrepreneur’s business. The website and the social media pages of the investors usually provide significant insights into their investment strategy and preferred sectors.

Not having a concise, good quality presentation while pitching to the VC

A good quality pitch deck is crucial to intrigue your potential investors. A majority of entrepreneurs fail to prepare a visually appealing and concise pitch deck which may take longer for the entrepreneur and the investor to come to the same level of understanding about the business model. In addition to being concise and visually appealing, the pitch deck should provide a comfort to the investors on areas such as how large the market opportunity is, what is the competition landscape, why the business idea will sustain, how will the business scale and achieve profitability, and what will be the exit options for the investors in the future. The pitch deck should also provide clarity in terms of who is managing the business, the overall hierarchy and the team structure.

Not being able to showcase a sound understanding of the problem being solved

Investors look for entrepreneurs who have a sound understanding of the behavior of their target customers, the problems their customers face and how their business will solve the problems of these customers. It is equally important for entrepreneurs to have a clear understanding of how to reach out to their customers, convey the value proposition and acquire them.

Not having clarity on execution

A venture capitalist can provide necessary inputs in terms of infrastructure, finance, potential team members, market research, networking opportunities, future rounds of funding and many more. As a result, it is important for entrepreneurs to have a clear short-term and a long-term execution plan while pitching to VCs. This will enable VCs to identify potential gaps and where they can add value, which will also help in aligning interests and increasing the chances of getting funded.

Not being true to the vision of the business

Though the VC may get a share of control over the business, it is the entrepreneur’s responsibility to make sure that the business stays true to its vision and objectives and doesn’t cave in to the demands of the investors. The entrepreneur should have a firm belief in the market and the business opportunity, and should also be ready to make things work, irrespective of the hurdles. Additionally, an entrepreneur should carefully plan the capital raise and retain sufficient control and management over his business.

Summary

Venture capitalists are the backbone of the startup industry. The success of a startup not only depends on the execution of the business operations but also on how well the business idea is prepared and presented to potential investors. Prudent entrepreneurs, who do their best in their first stage of preparation, will reap the benefits for a lifetime.

(Amit Ratanpal is Founder and Managing Director, BLinC Invest-a venture capital firm.)

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Published on: Wednesday, September 29, 2021, 04:32 PM IST
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