Why Do So Many Companies Fail to Raise Money & Get Funding?
May 22, 2012 Leave a comment
Without a doubt, the biggest mistake made by entrepreneurs is pursuing the wrong funders.
Just like a specialized surgeon, most funders have areas which they feel very comfortable with, and others that they don’t. For example, even the most attractive clean-tech company might be quickly thrown in the trash can by a funder whose core focus is pharmaceutical deals.
If you are going after the wrong funders, no matter how good your company is, you probably won’t get funding.
Rather than blindly reaching out to thousands of funders, it is important to create a list of those that will actually have an interest in your business. The key factors to look at in creating that list are:
- Industry Preference
- Stage Preference
- Companies Previously Funded
It is estimated that over 50% of new businesses generate funds from friends and family of the entrepreneurs. However, for many entrepreneurs, the main challenge that they face is locating the right people who are most willing and able to fund their ventures. Recognizing this common problem, 40Billion has created a unique solution called Funding Probability.
As the name suggests, the Funding Probability tool helps users estimate the probability that each person in their social network will become a funder or investor. The tool is based on a proprietary algorithm, which ranks each of the user’s contacts and indicates funding probability with an easy scale of High, Medium, and Low. The “High” probability contacts are those individuals who are most likely to provide funding to a particular business venture, and the “Low” probability contacts are individuals who are least likely to fund it. Based on this scale, the system is able to match the user’s venture with the most promising funding sources in their social networks.
Since launching a prototype of the Funding Probability tool, we’ve seen promising results as 9 out of 10 actual funders in the entrepreneur’s social network on 40Billion were ranked either High or Medium on the funding probability scale.
The Funding Probability feature saves entrepreneurs time and resources that they often spend chasing unlikely funding sources. Fundraisers can access the tool by clicking Invite Your Friends on their business fundraising profile page (i.e., their Raise), and 40Billion takes much of the guess work out of raising money.