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5 Common mistakes startups make when applying for funding
There is a perception among entrepreneurs that a revolutionary idea is enough to secure the venture capital needed to kick-start their businesses. This is simply not true. Here are five of the most common mistakes made by entrepreneurs when applying for VC funding.
1. No WOW! Factor
The first rule in the VC game is that your business proposition must have an exceptional differentiating factor. You need to know what your sustainable competitive advantage will be. If you’re trying to raise funding for a conventional business or idea like a franchise or service business, VC is probably not the right place to start looking.
For the best chance of success:
2. Expecting a 24-hour turnaround
A large number of applicants turn to VC funding at the eleventh hour as a last-ditch effort before running out of capital. Securing VC funding is not for the impatient: Business analysis, building the investment case, approval, due diligence, and legal and financial structuring are undertaken with meticulous care and attention to detail. Plan for a longer process than you imagined as it could take a number of months depending on the deal size and stage of the business.
For the best chance of success:
3. Touting an untested idea
VC analysts and fund managers are unlikely to be swayed on the strength of a business plan alone. For the best chance of success, develop a working prototype or some basic software. VC funds respect entrepreneurs who have risked their own funds and resources to get their big idea off the ground.
For the best chance of success:
4. Neglecting the real numbers
A solid business plan is not based on assumptions. VC funds want to see market research reflecting real data to back the financial projections. They want to fund entrepreneurs with an in-depth understanding of the market, both locally and internationally.
For the best chance of success:
5. Lacking a clear development path
Too few entrepreneurs have a clear understanding of how much funding they actually require for the next stage of their business. And sometimes are even unclear about what the critical goal is that the funding is to help achieve. You lose credibility if you return to the market for more funding without having made significant progress.
For the best chance of success:
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