3 Warning Signs That Your Startup Isn't Positioned to Secure Funding
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If you throw a rock in Silicon Valley, chances are you’ll hit an artificial intelligence or augmented reality startup. Right now, there are quite a few smart people trying to break into these fields and turn their products into the next big thing in tech. This is also the case in many other fields and markets.
This is exciting in the big picture. But for entrepreneurs on the ground, it means that standing out from the crowd is increasingly difficult — especially when it comes to attracting investors.
This makes it especially notable, then, that a new AI/AR startup called Artie is attracting so many high-profile backers, such as media mogul Jeffrey Katzenberg and YouTube co-founder Chad Hurley. Artie has already secured funding in the mid-seven figures for its seed round.
So what makes Artie so special despite being such a newcomer to the field? Although its goal to take virtual avatars and put them in the real world through a combination of AI and AR is interesting, an idea alone is not enough to raise millions.
This is where Artie shows its true expertise, not only among AI/AR startups, but also within the larger entrepreneurial world. Artie impressed investors with its display of business acumen and an understanding of where the market is and where it’s headed.
For most startups, even those with fantastic products, the challenges that come with trying to find funding have to do with the everyday obstacles of running a successful business, not with an overarching vision.
Improving your chances of getting funded
In Dun & Bradstreet and Pepperdine University’s recent report on private capital access, we found that a little under half of all businesses consider the financing environment to be restrictive when it comes to growth opportunities. However, small and midsized businesses also perceived funding to be more easily accessible than in previous years.
This points to the notion that the problem when it comes to securing funding isn’t necessarily one of availability. In many cases, it’s a matter of startups failing to position themselves properly when trying to attract investors. Here are a few warning signs that your startup isn't positioned to secure funding:
1. Your plan isn't bulletproof.
Unintended consequences can be the kryptonite of otherwise strong startups. If there isn’t someone in leadership who can dot every i and cross every t, it could mean serious trouble.
TikTok, for instance, was recently fined $5.7 million because the startup forgot to do its due diligence when it came to privacy law. Even if a fine can be weathered financially, it can do serious damage to a startup’s reputation, especially in the eyes of people who might consider investing in the company.
Consider hiring an experienced startup attorney and an experienced financial consultant as soon as possible. Even if the upfront cost of hiring a true professional is steep, the right hires can prove their worth time and time again.
2. You don't have specific plans for the money.
Investment firms have never been more willing to hand out money. In 2018, these firms spent more on private businesses than ever before. That doesn’t mean, however, that they’ll spend indiscriminately. If a startup is serious about funding, it needs to figure out what it actually needs to grow and how that money will be spent to achieve that growth.
It’s important to know what differentiates one offering from the others and how to continue to evolve as a business grows. One of the best ways to figure this out is to stay in regular contact with customers, who tend to be a startup’s best brand ambassadors. That way, it’s easy to stay on top of what’s working well and what needs to change to move forward.
3. Your knowledge of the market is subpar.
Understanding a market is about more than just knowing who to target. It’s important to recognize the risks that come with the market and the other players within it.
Artie’s greatest challenge when seeking capital was related to pitching an entirely new kind of tech stack and tackling a handful of difficult problems in the AI and AR markets. The startup knew that to be persuasive, it needed more than an impressive demo; it had to show that the direction it was headed was the future of media consumption. Artie aimed to show investors why video engagement was declining on mobile and how it could be improved thanks to easily shareable virtual avatars powered by AI. This all came from knowing its market.
Most startups need to dive deep into research to know their industry space. Consider working with vendors or tools that compile industry information. And if possible, ask for feedback after every pitch and meticulously iterate on the sales deck as an ongoing process. This will help ensure the pitch is keeping up with what investors are truly looking for.
The three tech students who started Handshake a few years ago saw a need in the marketplace and filled it. Handshake is a social network for college students to help them find jobs and for businesses to search for job candidates for the positions they need to fill. By 2018, more than 14 million students were on Handshake and hundreds of university job centers were working with the network. Plus, more than a quarter million employers were engaging as well.
For a startup looking for money to help advance to a new stage of growth, the challenge isn’t necessarily finding investors; it’s convincing them that they’re making the right choice by investing in one particular company over others. This isn’t always an easy task, but by taking the right steps when building up a company and creating a pitch, it’s possible to ensure the next round of funding will be a fruitful one.