13 Warning Signs of a Bad Startup Funding Strategy

Bad Startup Funding Strategy

Nearly every startup seeks funding of some sort. For those going to others for investment — be it friends or family, bank loans, angel investors, venture capital, or some other form — most go about it the wrong way. Today, let’s take a look at the 13 warning signs of a bad startup funding strategy.

A successful startup can be very rewarding for investors. But investors need to choose properly before they devote their financial resources to startup funding. When investors of any kind are making the decision as to whether or not they should invest in a particular startup, they are likely to walk away if they see any of the 13 warning signs of a bad startup funding strategy outlined below. This is why it’s important to watch out for them, to not only protect you and your startup, but your investors (if that’s the route you go) as well. Here we go:

1. Weak Research

Market research: It is important to thoroughly know and understand your target market. So often, I hear founders say “Our target market is everyone,” or “If we capture just 3% (or whatever) of the population, our MRR (monthly recurring revenue) of $XXX.” No. No. No. That is not the way it works and that is certainly not any investor wants to hear. If you want to build an enduring, profitable startup (regardless of whether or not you want to raise capital), you need to understand everything you possibly can about your market and in particular, about your target customer. Start small and you can branch out from there. Impress your potential strategic partners, investors or even future founder team members with your knowledge of your target market and your target customer. Some good sites for market research include the Alexa Blog, MarketResearch.com and Jim Vileta’s Research Launchpad, hosted at the University of Minnesota.

Competitive research: Like market research, it is equally important that you know everything you possibly can about your competitors. Not fully understanding your competitors will not only inhibit your ability to raise capital from any source, but will also significantly harm your ability to secure customers, establish strategic partnerships or even hire and retain quality founding team members or employees. IntechInc provides a list of competitive research tools but you can also learn a lot by visiting competitor websites, creating Google Alerts about your competitors and following them on social media — just be sure to not leave out any platform that they are of a part of because they may target more than one customer or industry segment. Jim’s Research Launchpad mentioned above also provides some great research tools.

Funding prospect research: Don’t even think about approaching a potential angel investor, venture capitalist/firm or high net worth individual until you have thoroughly researched them. At the very least, you should know their industry/investment interests and the types of investments they have previously made. On a side note — it’s not wise to ask for money right away. Your goal in speaking with a potential investor should always be to get to the next meeting. Some of the best sites to conduct research on prospective funders include Crunchbase (it’s worth it to pay for the premium version) or Angel.List. If you are interested in non-dilutive funding sources such as business grants at the federal level (e.g., SBIR/STTR grants, etc.), be sure to check out Grants.gov. I also have my own proprietary database of local, state and regional non-dilutive funding opportunities — simply contact me if you would like to discuss and learn more.

There are really more areas of research but the three above are critical to not only building an enduring, profitable startup, but if you are looking for investors — even if it’s family and friends or a bank loan — they are essential to raising capital.

2. Disorganized Business Model

3. Poor Management Team

4. Poor Team Culture

5. Weak Funding Structure

6. Weak Funding Sources

7. Undefined Goals and Vision

8. Undefined Actions

9. Bad Product Experience

10. Poor Marketing and Focus

11. Poor Resources

12. Legal Challenges

13. Bad Debts

Conclusion

Accelerators such as these help you avoid the typical mistakes many founders make, provide you a wealth of technical assistance, sometimes offer funding and generally, offer access to their network of mentors and even sometimes, investors.

Interested in learning more about you as a founder can avoid the 13 warning signs of a bad startup funding strategy? Contact me today and let’s talk!

I love entrepreneurship and helping businesses and organizations build foundations for growth and funding success. Let’s talk startups, growth and leadership!

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