Anyone who runs a startup knows how important it is to get funded. Getting funded means that you have convinced an outside investor back your idea. And funding is going up in all industries, with payment startups reaching $3.8 billion in funding last year.
It's easy to think that this is a guarantee of startup success and you will never have to worry about money ever again.
But startup failure rates aren't much better even when you get funded. Here are some of the reasons why getting funded doesn't always guarantee startup success.
1. The Investor Isn't Supporting You
Getting funded doesn't just apply to money. An investor must support you through business mentoring in order to take your company to the next level. A startup with novices in charge will still have novices in charge even if it happens to have a lot of money at its disposal.
It's better to offer a small amount of investment with comprehensive business mentoring than a lot of money with no support.
2. More Money to Burn
If you gain investment from a venture capitalist, you may have thousands and thousands of dollars at your disposal to spend on a digital marketing strategy. But that doesn't mean you know how to use that money. In many situations, startups in this position are likely to waste more money on frivolous B2B lead generation tactics because they believe that they have more money to burn.
If anything, they are less careful than ever before. And that can lead them into financial difficulties later on because they've blown all their money on generating B2B leads. Many startups who bootstrap have more success because they make more careful decisions.
3. What are You Giving In Return?
There are many forms of funding. You may have to give away a share of your company in order to secure investment. Sometimes you may be crowdfunding and you could have to deal with perks. This can take away a lot from your core business operations.
It's just an example of what you may have to give back in order to secure that investment. Keeping your investors happy is a major issue, and this can cause problems when you are trying to juggle your main business issues with maintaining investor happiness.
4. A Focus on Company Value
The unicorn company is a new phenomenon in the tech world. It's where a startup is valued at a billion dollars or more. There's a lot of prestige in achieving this accolade. But many unicorn companies collapse without making a dime. The owners become obsessed with maintaining the monetary value of the company, and that makes them lose focus.
Think about why you are opting for outside investment. If the answer lies within company value, you are obtaining investment for all the wrong reasons.
Is Getting Funded Right for You?
First of all, you have to decide whether to get funded in the first place. Sometimes bootstrapping is the best option for your business because it keeps you focused and it allows you to operate without having to worry about outside responsibilities. This can far outweigh the value of having some extra money to play around with.
Sometimes getting funded is the right option for you because it's the only option, though. For example, it may require a lot of initial investment to get your idea off the ground. In this case, you have no real choice, but if you can bootstrap you may find that outside funding is completely unnecessary.
How to Obtain Funding
So you have decided that you wish to obtain funding?
There are many ways to secure funding. To get funding from the right investors, go out of your way to check out your options. Look at what an investor can do for you in terms of mentoring, as opposed to how much money they are going to give to you. Once you have done this, you should work on your business plan.
All investors want to get their money back. Create a clear plan for how your business is going to make money and provide a rough idea for how long it will take for the investor to make a profit. Think long-term not short-term. Clever investors want their investments to pay off for years to come.
The fact that you have gained outside investment doesn't always translate to success. There are thousands of startups that have failed even after they have received investment. It's easy to become complacent when you receive an injection of funds. That's why you need to look beyond the money. Think about what you would do with the money and how it's going to pay off.