Reasons Startups Fail to Raise Capital and What to do about it

Starting your business is a journey absolutely full of excitement and passion, but it is also filled with problems and challenges. It is widely believed that raising capital and finding the best funding option for a business is one of the major challenges. 

It is obvious that it’s almost impossible for a startup to thrive and expand without enough money to support its operations. However – and ironically – you cannot raise capital if your startup is not successful enough. It is the same vicious circle of what comes first: capital or success? 

So, you need to be successful in order to raise capital, and if you do not raise capital, you will fail. This is the dilemma of startups. According to statistics, failing in raising capital is the main reason why 60% of startups fail, but why exactly is that? 

We will view the most common reasons why startups fail to raise capital: 

Fundamental problems 

This is probably the most obvious but least addressed problem when it comes to raising capital. Sometimes you need to start with the basics. If there are gaps in your business plan; if your value proposition is not enough; if your team members are not dedicated enough; if you are targeting the wrong market; or still need to work on your product, then do that first – finalize all the fundamentals, and only then go ahead and showcase your work to investors.    

Pitching materials/strategies 

The devil is in the details, they say, and that applies to pitching to investors too. Sometime you are not using the right messages to contact investors online and really catch their attention. Sometimes, your pitch deck is not good enough to create curiosity and push investors forward to asking for more details. Sometimes, you are using the wrong platform sometimes, you are using one strategy and it is not that effective. There are multiple aspects that go into making a successful pitching strategy. Online pitching and offline pitching each have their own secret components. Look into what other founders are doing, adopt an investor’s perspective, create your own campaign, and keep tweaking until you see results,  

Contacting the wrong funding sources 

You can be doing everything right from you own side, but if you are contacting an investors who is very much into Ecommerce and series A ventures about your early stage healthtech idea, do not expect much. You got to meet the other party middle way and they should be able to meet you middle way too. You will save loads of resources, effort, time, and frustration once you give more time into actually looking at the background of the funding sources you are contacting and finding smart ways to contact only potentially interested ones efficiently.  

So what can startups that failed raising capital do to be on the track again? 

Well, a lot of things. This is a brief list: 

Create an irresistible pitch deck 

A good pitch deck is in most cases your first impression you leave in the investor’s mind. Make sure it covers all the aspects needed business-wise and also make sure it is eye-catchy and impactful. 

 You might think of reviewing and editing your pitch deck if you already have made one or built a good one from scratch. There are many tools online and many examples of successful pitch decks. Invest in creating a high-quality one or get help from an external professional team. Whatever you choose to do, do not approach investors with a poor pitch deck. 

Look into similar businesses that raised capital 

You should always keep an eye on your peers. Have any of the startups that are similar to you own (same stage, same industry, etc.) raised capital successfully? If yes, you should look into the investment deal, who are the angels who invested, are they connected to VCs or angel groups? Getting in contact with founders who had success stories in raising the capital and learning from them is a good resource. Also, you can check demo days and pitching events – online of offline – for startups in similar markets, industries, stages. 

Work on your achievements 

Before contacting investors and raising those 5 million dollars, it is better to work and build your own achievements gradually. If you need only 500K to build the product first, then start with that. If you are working on building strategic partnerships that can present your business as a more established one, go for it, and then you can work on raising the capital.  

Work on creating a timeline of achievement in order to impress your investors and show them that the project needs the money only to achieve more and more. 

Conclusion 

With the incredible growth in the startup ecosystem and the unprecedented room for innovation and technology, it is getting more challenging to really get the attention when seeking capital. However, entrepreneurs and founders should always have the patience and acknowledge the fact that it is challenging for all startups out there too and that with enough hard work and dedication, you can get there as well stronger and with a solid ground to build upon.