Quora Answer: What is the Number One Reason Most Startups Fail to Get Funding?

The following is my answer to a Quora question: “What is the number one reason most startups fail to get funding?”

You have to understand that there are far more start-ups looking for funding than funders out there.  Any start-up is competing against hundreds, perhaps, thousands of others in a similar field, all convinced they have the next cutting-edge technology, the next best thing since sliced bread.

I have been on both ends of the spectrum, representing the start-up seeking funding, and the funder’s financial advisor to the start-up.  Start-ups fail to get funding because they fail to articulate their case to potential funders.  Many of these people can barely state their case.  If they cannot present to the funder, how are they expected to present to shareholders, business partners, and customers?

Some of them can certainly talk, but they do not know how to present a coherent business case for their service or product.  They do not understand how to fully leverage their case with their strengths.  Many of them have no one who is financially literate, and that does not give funders the confidence to give them money.

Finally, when it comes to a business plan, no one has the time to read through hundreds of different plans from all manner of hopefuls.  There are four things we look at.  If we like what we see, our people will read the rest, and crunch the numbers before we invite you for a meeting.

Firstly, the executive summary needs to be less than a page.  If you cannot tell us what you do in two paragraphs, and the market you intend to capture, then you have no idea what you are doing, and that business plan is discarded.

Secondly, we want to look at your financials.  We need to see if the numbers are real, or built on hope and fantasy.  Most financials are far too optimistic, and give unrealistic timelines.  That tells us, again, that you have no idea what you are doing.

Then, we want to see the exit strategy.  A lot of business proposals, asking for funding, do not even have this section.  Do you intend to eventually buy us out?  Are you going for IPO?  Is there further funding down the road?  Is there a sale on the horizon?

Finally, we look at the team.  If the expertise is inhouse, it looks promising.  You cannot have a technology start-up run by three accountants who intend to hire a programmer.  That is never going to work.  As such, building a credible team is very important before you ask for money.