Why are most startups not able to raise Series-A funding?

Most startups, even those who get angel funding or seed-stage funding or investments from accelerators/incubators, are unable to get follow-on funding. Why is Series-A funding so elusive? When Angel Investors invest in a startup, they do so after assessing whether the startup will be able to raise follow-on capital. That’s how they have a chance of getting an exit for their investments.

Why then, are startups not able to raise follow-on capital despite the mentoring and advice they receive from their angel investors or accelerators or incubators? At GHV Accelerator, we analyzed this problem and spoke to investors and startups to understand the reasons. And based on our conversations, we had some very interesting observations. Kindly note that these are reasons of decline by VC’s, even when they believed that the opportunity was large and the concept/product was exciting.

Reasons for startups to not get Series-A funding

(This is in no order or priority, but investors mentioned that they often see at least two of these reasons in angel-funded or accelerator-supported startups that they end up declining)

• The team has failed to build the skill-sets and competencies that are required to take the venture to the next level i.e. some skill sets are missing
•  The venture has not done enough to demonstrate that there is a potential to grow i.e. whilst focusing on developing the product, the venture missed out on building traction as an evidence of the potential
• Lack of defensibility of the differentiator – often lack of IP or anything that can give the company a defensible, unfair advantage
• Lack of in-market validation of the product
• Interestingly, poor product or service was rarely a reason for decline

When we spoke to startups, we realized that most were totally unprepared to engage with VCs. Here is a checklist of what we think startups should be prepared with. Of course, there are a whole lot more things that they need to be ready with, but these are absolutely necessary for even getting follow-up meetings after the initial interaction with VCs – research their past investments, understand their perspectives and thoughts on the market, etc. This helps startups align their thoughts and conversations in line with the VC perspective.

• Understand their investment criteria – some may give more weightage to traction, some to the team, some to market sentiments, some to global opportunities while some may look for domestic focus, etc.
• Understand what they are looking for i.e. the kind of ventures they are seeking – some may be keen on product ventures while some may be open to a services business. Some may look at operationally intensive businesses, while some may not.
• What is the investment scenario – remember startups are ‘competing for capital’ with other startups, even those from completely different sectors than yours – and therefore, it is important to understand the investors view of your sector. (e.g. in the current environment, some VCs are shunning e-commerce ventures while some believe that there is still some potential in verticle spaces, and yet some others are keen to invest in ventures that support e-commerce e.g. logistics, analytics, etc.)
• Be clear on what you seek from the VCs beyond the money – clearly articulate how they may be able to add value – this helps them understand why this could be a relevant investment for them e.g. “You have investments in XYZ and ABC company. Clearly, there are synergies in what we do and two of your portfolio companies. Hence, we believe that your fund will be the ideal investor for us as it will help us leverage some synergies.”

Check the webinar –https://www.youtube.com/watch?v=sy8W75wqAzw

About the Author :

Vikram Upadhyaya, Accelerator Evangelist, GHV Accelerator

Vikram is having diversified experience from Japanese Projects Offshoring to Global Corporate Strategy and New Ventures Turnaround, specialized for the Japan-India Cross Border Business execution.

For More Details - http://www.ghvaccelerator.com/

Source : YOUR STORY 

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Team, the most important ingredient in a start-up (ENTREPRENEUR INDIA)

Ask any investor or successful entrepreneur, and they will reiterate that the most important factor in a start-up is the quality of its founding team. A team is more important than the idea or the size of the market or the technology or the business case, or indeed any other factor that investors will review to check the investment-worthiness of a venture.

Even if  - the product is great; the technology is cutting-edge; the market is large and the company has a strong chance to be a dominant player in that large market - investors will hesitate to invest in the venture if they do not get the confidence that the founding team can deliver in the market.

What investors seek is a team that is passionate about the subject, is enthusiastic about the opportunity, has a good grasp on the dynamics of ‘business’ and not just the product/service, and who can demonstrate commitment to fight it out in the market.

While it is good to have experience in the domain, that is not a must, as that will exclude a number of bright people who either do not have work experience or are from a different domain than the concept they are pursuing. However, what is important is that even without experience in the sector, the team should have studied the sector enough to understand it very well. In fact, that is also why passion and interest in the sector is critical, because that makes it easier for a person to study the sector well.

An ideal team is one in which core functions required to execute the concept in the market are well covered – ideally – one techie, one ops person and one hustler for sales. However, the dynamics of each market differ and the team ideally should be relevant for that market. E.g. the sales person’s profile and competence for a big-ticket enterprise product (e.g. analytics) selling to large, global companies will be very different than the competence required for selling small-ticket products/service (e.g. SAAS platform) to 1,000s of smaller companies.

The founding team should have leadership skills. There is a war for talent in the market. And hence, unless the founders exude confidence and have great leadership and people management skills, it will be difficult for them to attract and retain talent.

Most importantly, the team should have the willingness to roll up their sleeves and implement on the ground. As you would have heard from many entrepreneurs and investors, ideas are a dime a dozen. It is the quality of execution that matters.

Last, but not the least, it is important for the founding team to have decided who will be the CEO from among them. That decision is critical for investors, as they do not want the founders to fight over this at a later stage after they have invested. 

At GHV Accelerator, we use the filter of T.E.S.T. POC – which stands for Team – Execution Capabilities – Scalability – Technology and Proof of Concept. While each of these are important, if the first T - i.e. Team - is not the right one, scoring high on the rest of the parameters is not important.

For More Details - http://www.ghvaccelerator.com/

Source : EntrepreneurIndia. 

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