3 Reasons Why Your Startup is Struggling to Raise Venture Capitalby Brady Bohrmann, Partner at Avalon Ventures

About Brady Bohrmann

Brady has over 20 years of experience as a venture capitalist and operating executive in both information technology and biotech. His focus is on early-stage investments and backing talented entrepreneurs.

Throughout his venture capital career, he has worked with over 75 companies. He currently is a director or observer of many Avalon portfolio companies, including Backupify, Chart.io, Cloudant, Inc., Conjur, Indix, Juliet Marine Systems, Kaltura, Kinvey, Memrise, Nanigans, Pingup, Redbooth, Selectable Media, Simulmedia, The Happy Cloud, Twinstrata and Vook.

The State of Early Stage Investing

• There are a number of new ways in which early stage companies are raising capital.

• Simultaneously, there is an increase in the amount of people investing in startups.

The State of Early Stage Investing

The number of seed rounds in the U.S. alone has multiplied ten times in the last six years and the capital to fund these companies has more than tripled.

Now is a great time to start a company

Not only is there more capital available, but the costs to start a company have decreased dramatically.

As companies continue to innovate on the ways they structure their business and develop new revenue streams, business models are also changing.

Now is a great time to start a company

It’s an exciting time to be a startup, yet many companies are still unable to raise funding early enough to get off the ground.

If you are in that position today, you’re likely wondering why you’re having trouble raising funds if the market is doing so well.

3 Common Mistakes Early Stage Companies Make When Pitching

1. You’re Targeting the Wrong VCs

Why a VC may say No to investing in you may have little to do with the quality of your idea or team.

1. You’re Targeting the Wrong VCsA VC may say no for a variety of reasons:

• They are late in their fund cycle.

• They have sufficient investment in a given industry.

• They deem the opportunity competitive or too similar to an existing investment.

• The opportunity may be out of their domain expertise.

An example

At Avalon Ventures, we invest only in the technology and life sciences sectors. We’ve made nearly 100 investments in these two sectors and have doggedly kept our focus on investing in early stage companies.

1. You’re Targeting the Wrong VCs

It’s important to do your research before pitching VCs. Ensure they have a focus in your industry without being over-invested or invested in a competitor.

While this may be hard to determine from the outside, know that if a VC says No to you, there may be nothing wrong with your idea but rather a timing issue or the idea falls out of their industry knowledge.

2. If a VC can’t say Yes to 3 Important QuestionsThere are 3 important questions I ask myself when startups are pitching for investment:

• Will it work?

• Can I win?

• Is it worth it?

If I can’t answer these with a resounding “Yes!”, Avalon is unlikely to invest.

2. If a VC can’t say Yes to 3 Important Questions

If we’re going to go to battle together (and we will if we do work together), I need to be able to answer those 3 questions to get us through the tough times.

2. If a VC can’t say Yes to 3 Important Questions

These important questions have shown their value to me time and again and are a great way to simplify many complicated investment decisions.

They also help test our conviction and maintain our confidence to continue investing when a company runs into a challenge along the way.

2. You’re building a feature, not a product

Most startups believe that as long as they build a great feature, a larger company will acquire them.

While this approach can work, and can be a successful way to get an attractive return, it fails to attract the attention of investors who are interested in a larger outcome.

2. You’re building a feature, not a product

The most successful acquisitions are typically companies that have built something innovative and complete.

These are of more value to everyone involved.

An exampleTake the acquisition of our portfolio company, CloudKick by Rackspace. In the acquisition announcement:

“CloudKick’s platform is comprehensive, which makes it an attractive buy for a company like Rackspace.”

2. You’re building a feature, not a product

The key here is to demonstrate your ability to do something so well that an acquiring company cannot imagine a better way to do it.

The Takeaway• Raising capital takes a lot of time and

energy.

• There may even be better ways to finance your startup such as crowdfunding, bootstrapping or a loan

• First understand the factors a VC will consider before investing in you

• Ask yourself and our team the hard questions before pitching VCs

Learn more!Visit http://avalon-ventures.com/blog for more actionable advice on early stage startups, VC funding and other entrepreneurial tips.