Are you committed to the business?

Is this a thing you can’t, not do? If you aren’t inspired by your business idea and vision, it’s difficult to convince others to be a part of it; let alone use it. Not to mention, it doesn’t feel good to enter into obligations with investors if you are unsure you want to spend your time and effort on developing the business.

Do you understand your market?

At the core of your business, you are providing a product or service designed to solve a specific problem for at least a semi-particular audience. If you don’t deeply understand your audience, it’s difficult to create a sustainable business selling your product or service. Market research can help greatly in this area and is a must for the company to receive funding.

Have you validated your business model?

Having some sales shows there is demand for your solution. If your solution requires more capital to build and go to market, such as a physical product or technology platform, you can validate your business model through pre-orders or letters of intent to purchase the product when it becomes available. Nowadays, it is becoming rarer and rarer to raise funding without an M.V.P. (Minimal Viable Product).

Do you have a plan for growing the business?

Whether it’s in a traditional business plan format or pitch deck, you will need to demonstrate to investors that you have a clear plan for how the business will operate and become financially sustainable. This shows that you have thought the business idea through, and have established goals and measurements of success. These growth metrics are key to any business; even more so if this business is to raise capital.

Do you know what you need the money for?

Investors want to know how the money is going to be used ; research and development, marketing, hiring, legal fees, creating infrastructure, or something else. They are looking at whether these expenses are likely to grow the business; if that’s enough or too much funding at this stage of the business; and if more funding is needed in the future to meet business goals. These items and many more are looked at closely to see how profitable the business will be for the investors; as well as how accurate the team is at making financial and growth predictions.

Are you ready to put your plan into action?

Investors want to see that you have the skills, motivation, and accountability to execute your plan. At the same time, they want to know that you are self-aware enough to see when you need additional support and are open to asking for and receiving feedback and assistance. To this point, don’t be afraid to ask for help. Humility is important as a new entrepreneur. While many investors will not invest their capital, many of them will be happy to invest their time; all you have to do is ask for it.

So, before you rush out to raise money for your new venture, take a second to see if you are up for it. You must understand your market, test your idea, and put in place a plan for success. Five23 is innovating through services that assist the process of organization and raising money. These services can be the first step you take toward success. If you wish to learn more about our services, please contact us via email: contact@five23.io or reach out on social media. We would be happy to answer any questions you may have.

The post Ready to Raise Capital for Your Business? Think Again first appeared on Five23.

Take Control of the Product

       We’ve seen it time and time again, an investor asks the startup to do certain things with the product. Maybe it is moving production to a different manufacturing plant, or changing the structure of the offered service. Either way, these changes might not be in the best interest of the startup. Once the change is made, the investor will ask for another item, maybe the product designs or an exclusive look at the next service coming to market. From there, the investor may have an idea to bring it to market sooner, however, they will probably say to you the entrepreneur, “You just needs to change these few items first”. You make the changes and the next thing you know is that the product or service is very different from what you initially planned. While this may not be a bad thing from a business perspective; the company generally loses sight of their initial goal. At this point, the founding team is not longer needed to drive the innovation of the company. When this happens, the majority of startups fail. With no drive to innovate or develop more products, the company and the team behind it fizzles. The entrepreneurs behind the MVP move on to different products to meet their innovative needs. And as soon as you can say “Success!” the startup has been dissolved. Reduced to a smouldering pile of failed promises and broken dreams.

Create a Loss Leader

       Investors can act as strategic partners in many cases. They can drive sales and make introductions to keep the startup innovating and succeeding. The problem arises when deals are made that are not in the best interest of the startup as they grow. Let’s say for example a mattress company signs a deal with a strategic partner, in which the strategic partner agrees to buy 500 mattresses a quarter for the next 5 years at a price of $200 a mattress. When the company is starting to see revenue, a guaranteed purchase of 500 units a quarter for 5 years is great! It is impossible to say “no” to. However, as the company grows, they begin to realize their cost to make each mattress needs to increase from $150 a mattress to $250 a mattress to stay competitive. When this happens, the $50 in net profit they would receive from each mattress sold to the strategic partner decreases to a net loss of $50 a mattress. For a new company, this change from a net profit to a net loss can be catastrophic. If the strategic partner is not willing to negotiate the terms of the deal, a loss leader is created. If there are not ways for the company to navigate with this loss leader the startup can fail. While this seems counterproductive for an investor in a startup, it is quite common among startups with physical products. The best way for startups to negate the potential of a loss leader is to sign terms in the deal that are flexible as the company grows. Having terms against creating a loss leader is ideal, however, startups rarely consider these items at the time the deal is signed.

Force Decisions

       The most common way an investor can destroy a company is by making decisions for the company. While they might not seem forced, in many cases they are. An investor typically will force a company into doing something by saying it is for the benefit of the company or that something will come out of it. The forced decision that is being seen more frequently is the investor requiring the startup to move to a more “productive” location. They do this via terms of investment or by social pressure. In the first, but less common situation, an investor will require the startup to move to a location nearer the investor (typically the San Francisco bay area) if the startup wishes to receive funding from them. In the more common scenario, the startup will receive funding, but will always have to travel to the investor’s area for meetings and introduction. While this can be productive for the startup. When the bloated prices and cost of operating a startup in the bay area are considered, it is often detrimental for the startup to leave their ‘home’ region in favor of the bay area, even for the capital and introductions. While this is just one example, there are many other ways investors can force decisions to be made by startups. Whether it be partnership deals or strategic hires, there are always deals to be made. Though they are rare and generally are in the best interest of the startup, these forced decisions can be destructive in the short and long term.

These forms of destruction are rare, but they do happen. The best way to stop them from happening is being aware of what is going on in and out of your startup. Quarterly calls with investors is a great start, understand what the investor wants for your company and how they plan to achieve it. This can give you great insight into their end goal with you as a company.

Saying “No” is also a great way to stay on top of your company. In many cases, it is hard for entrepreneurs to say “No” to an investor in their startup. However, saying “No” is just as important as saying “Yes”. If you feel an investor is trying to guide you down the wrong path take a step back. Fully understand what they are trying to do, and if it is not in the best interest of the company, feel free to say “No”.

Finally, consult with a third party. Five23’s reports and services not only look at the company with fresh eyes, but we are also experts in discovering the needs and intentions of investors and startups alike. Therefore, if you are unsure about a decision, we can guide you in making the correct decision for all parties involved.

If you have any questions or would like to learn more about the ways investors can ruin your startup. Feel free to contact us via email: contact@five23.io. If you think you might be partnered with an investor that is trying to harm your business, intentionally or unintentionally, please contact us. We’d love to discuss your options to make the best decision.

The post 3 Ways Investors Can Destroy Your Startup first appeared on Five23.

Find your Industry

First, find venture firms which are aligned your industry. This will give you a great advantage, as they typically understand what you are trying to do and the overall needs of the industry. An example of this would be a company entering the smart contacts market for IoT devices. There would be no reason for this company to reach out to BioTech venture firms. They need to reach out to IoT venture firms such as Intel Capital, Andreessen Horowitz and Khosla Ventures. These firms understand the IoT market have made investments in uBeam, CellScope and Avegant.

Strengthen with Criticism

Second, “No” is okay. Many first time entrepreneurs and founders take being told “No” to heart. It can lower their self esteem and make it more difficult to reach out to investors in the future. Don’t let this deter you. When an investor says, “No, we are not interested at this time.” ask why. When they tell you the reason, use it as a learning opportunity to strengthen yourself. As you reach out to the next investor, you will be stronger and more prepared if the same problem arrises.

Think Abroad

Third, think internationally. Though 40% of all venture capital firms are located in the U.S., and your company may be domiciled in the U.S.; It doesn’t mean you have to focus your fundraising efforts on U.S. firms. The remaining 60% of VC firms are located around the world. Find one from any corner of the global with a fund focused in your industry and reach out. You may be surprised how open they are to your idea. Don’t limit yourself or your company geographically. In most cases, innovative products can be used worldwide, and if that is the case, it can be easy to find worldwide investors.

In summary, find the top ten investors in your particular industry, then expand it to one hundred. Make sure they are from around the world and have invested in companies similar to yours. If they say, “We are not interested at this time.”, find out why and learn from it. As time goes on, you will become better at raising capital and investors will start taking notice. The checks will come and your idea will become a reality.

The post Find an Aligned Venture Capitalist first appeared on Five23.