Seeking Capital? Ask Yourself These 3 Questions First
Statistics report around 75 percent of venture-based startups fail, so make sure you can answer these three questions before getting into business.
The U.S. has the largest tech market in the world. There’s lots of room for astute entrepreneurship, but the competitive nature of the industry doesn’t leave space for boundless growth, especially as the economy continues to oscillate. Now more than ever, it’s important to be smart about entrepreneurship. As academic director of Columbia University’s Executive MS in Technology Management (EMSTM) program, I always recommend my students come to the table with a well-thought-out, long-term business plan. Now that we’re dealing with an unprecedented economic situation, I insist all entrepreneurs do the same.
Harvard Business School reports that 75 percent of venture-based startups fail, indicating that too many people are jumping into the game unprepared. The venture landscape will be vastly different after the markets stabilize. What won’t change, however, is the fact that you will need to be prepared for anything. If you’re a tech executive thinking about seeking capital for a future idea, ask yourself these three questions before you begin:
1. Is there a market for this idea?
In order to truly be successful, executives seeking capital for a new idea must be willing to think outside the box and consult with people who can help them hone in on the “problem” their idea will help to solve. The number one reason why startups fail is misreading market demand — this is found in 42 percent of cases. You must do your research. Look up trends and data forecasting and consult experts who can give you insights that might not immediately come to mind.
At Columbia, each student must create a business plan for an idea and defend it in three rounds of presentations to a panel of professors, mentors and business professionals. This kind of outside perspective is critical to help you see potential blind spots in your market strategy and business model.
2. Who can I trust to help me?
Don’t silo yourself in the development process. Mentored startups grow three-and-a-half times faster and raise seven times more money than those conceived alone. A mentor who can help you with your idea and guide you on how to focus and invest time wisely can make all the difference. That’s why fostering these kinds of relationships is one of the most important things you can do when seeking capital.
Columbia’s program puts a huge emphasis on mentorship. In fact, every student is paired with a professional who matches their interests soon after commencing study. Mentors choose their mentees by viewing their project proposals, and matches are made based on mentors’ expertise or ability to help a student according to this proposal. This process is important: When a mentor chooses a mentee, it gives them extra incentive to commit to their success.
You don’t have to wait to be sought out by a mentor. Simply find a confidant who shares your energy and excitement for your idea. According to Harvard Business Review, shared entrepreneurial passion and strategic vision are required to get to superior team performance as rated by external venture capital investors. Seek a mentor, partner or colleague who is as excited about your idea as you are and you’ll be on the right track.
3. Is it scalable?
Partnerships aren’t just important in a mentoring capacity; finding a partner who shares your passion for your idea increases the odds of scalable success. Startups with two co-founders, for example, typically garner 30 percent more investment, experience three times higher customer growth rates and have an increased likelihood of not scaling too quickly.
Once you identify a good partner, think through the future of your idea and build a timeline of goals. Some recommend delineating five years of growth, developmental steps and potential market changes, but the ultimate timeline hinges on your specific goals. Getting your idea off the ground takes the right combination of passion and strategy. Executives looking to take their idea to the next level tend to only focus on how they’ll raise money at the beginning. Turning a profit in a reasonable amount of time is just as important.
Now more than ever is the time for innovation. Markets are changing, and there is room for those who can capitalize and solve problems strategically. We instilled this methodical ideology in our students at Columbia long before the current crisis disrupted the international economy, but we urge all entrepreneurs or tech execs seeking capital to practice the same techniques. If you want to build a strong case for success, identify a specific market need, seek a mentor or partner and make sure you have a plan to scale with room for contingencies. If entrepreneurs rush into a venture without a plan to build a stable business model, their great idea will remain just that.
Entrepreneur Leadership Network Writer