Mistakes That Startups Make #3: Funding

This is about expectations. Expectations of funding. Many startups seem to function in their early stages under the 'if you build it, they will come' theory of future funding.

Many startups get angel and VC funding in the U.S. In 2011 VCs funded a little over 3,000 startups. Angels is more of a guess, but the number is probably somewhere around 20,000. That's just my gut feeling. Many people will say there are more funded...a lot more! But most of these people want you to believe fervently in the 'if you build it...' theory. They want you to pay them to find you funding with the expectation that it will be easy and quick.

Some startups do get money quickly. This is very, very rare. Getting any kind of funding outside of friends and family can and normally does take years. And those are years where you are actively and continuously presenting to VCs and angels. Not trying to 'find' VCs and angels. Active presentation of your startup to angels and VCs. You can easily go through a dozen meetings over a year with a single VC just to end up being rejected. Angels can be just as exhausting and expensive. Most angels and VCs want to see you face to face. They want to judge your venture and YOU. If they don't you should take this as a sign of problems.

Some angels aren't really angels. They are people that are in collusion with angel agents and share the agents fee while leading you on. Don't get me wrong, there are some really good angel agents or brokers. But, there are also a lot of really bad ones. Watch for the sharks.

A lot of angels now belong to angel groups. They talk among themselves. If one rejects you then that rejection can eliminate the entire group of angel investors. And then you are hunting again for the next group of angels.

On average, it is extremely difficult, expensive and time consuming to get angel or VC funding. And that is if you are ACTIVELY PRESENTING. Anyone who tells you differently is not playing straight.

Most angels and VCs are highly protective of their contact information. In many ways they are like book publishers. If they make themselves too accessible they receive thousands (tens of thousands) of submissions each year. Far too many to evaluate. They have trusted advisors that bring ventures to them. These advisors are connected to executives in leading companies and those executives are watching for startups that have potential.

Startups need a few of things to succeed when looking for funding:

1. Money
2. Advisors that might be connected
3. Brokers that can position the startup

Notice that 'money' was the first need on the list. Plan on flying and presenting. Plan on paying a broker unless you are very well connected. Plan on presenting at VC conferences and competing in local and national competitons.

You need to understand that you probably have a million competitors all running after the same money you are. The most visible are the ones that will get the funding.

If you have no budget for raising money, then you have a very steep mountain to climb. A good estimate is a minimum of $50K for fund raising. If you are going after $Ms then you will need more.

Many startups have no fund raising budget. They spend everything chasing the 'if you build it' theory. Don't do it. Be actively presenting continuously while you are building.