Entrepreneurs strive to acquire venture capital funding for more reasons than just financial support. As an entrepreneur, you can also gain valuable guidance by partnering with a venture capitalist. Unfortunately, convincing VC firms that your company is worth the funding is not an easy task. You have to compete with all of the other entrepreneurs out there who also need financial backing for their startups. In this post, you will learn about the top challenges to acquiring venture capital funding.
Building A Scalable Business Model
One of the most prominent areas in which entrepreneurs struggle to obtain venture capital funding is the business model. Investors do not want to hand their money over to business owners who cannot create quality business models. They want proof that the money they put into your business will grow. To create a scalable business model, begin with a scalable idea like a big data startup. Plan out how you can continuously increase your profits and keep your costs low at the same time. Many entrepreneurs fail to offer a promising plan and, therefore, do not acquire venture capital funding.
Getting Introduced Properly
Another challenge that entrepreneurs face upon trying to acquire venture capital funding is getting introduced properly. Even with the best scalable business model, an investor will not even consider you if you introduce yourself in the wrong way. Investors receive a lot of emails on a daily basis. Thus, your email is likely to get lost in their inbox or spam folder. However, they are more likely to notice an email from a founder who is already in their portfolio. Investors will also acknowledge emails from their clients. If you have a professional relationship (or can build one) with an investor’s portfolio founder or client, reach out to them. Ask them if they can introduce you. Then, you can seize an opportunity to pitch your plan.
Many entrepreneurs also struggle with partner disagreements during the process of trying to obtain venture capital funding. You can find a venture capitalist firm that seems like the perfect fit. Then, you realize that they do not get along with your other partners during your first partner meeting. If one of your partners does not agree with your decision, you cannot effectively move forward with the firm you chose. You need to establish and maintain a good relationship with both your venture capital firm and founding partners.
Similarly, Lee Jacobs of AngelList recommends, “Building strong relationships between investors and partners is crucial to acquiring venture capital funding.”
Speaking To Firms Respectfully
Entrepreneurs also face the challenge of speaking to venture capital firms respectfully. As in any business meeting, you want to both portray respect and receive it in return. However, speaking to venture capital firms appropriately can be difficult. Assume that venture capitalists understand the terms and phrases you use. If you explain definitions to them at length when they already understand the terms, they will take offense. Speak to them as though they are experts in your field who run billion dollar startups. To ensure that they do understand what you pitch them, meet with firms that specialize in the industry of your new business. If you do, you can push through this point of disrespect that many entrepreneurs face.
Accepting Good Advice Only
Entrepreneurs face the challenge of separating good and bad advice from venture capitalists. During your startup, you will get hit with a lot of bad advice. For this reason, it can be hard to determine what advice is actually good. If you follow poor advice that pushes you to grow too quickly, you will not be able to kickstart your business in a profitable way. Thus, you need to find investors who truly believe in your business idea. If you sign a contract with a firm who does not, they could convince you to give up your dream and profit in other ways. After all, venture capital firms also provide entrepreneurs with guidance. It is not an easy task to find investors who will only provide good advice and guidance.
Venture capital funding provides entrepreneurs with both financial and strategic support for their startups. Unfortunately, receiving venture capital funding is not an easy feat. Entrepreneurs struggle to build a scalable business model to convince firms with. They are also faced with the challenge of being introduced properly. Partner disagreements pose challenges to entrepreneurs during the startup process as well. It can be difficult to learn how to speak to venture capital firms respectfully. Finally, determining which venture capitalists have your visions in mind can be difficult. These are the top challenges to acquiring venture capital funding.