Startups have the drive and potential to bring a breakthrough brand to life. And venture capital (VC) investors have the power to fund and profit with them. It’s a natural relationship.
However, despite a rise in overall VC investments, there are more ambitious startups than there is available funding. Because of this lopsided arrangement, competition for VC funds has become a prime concern for many budding businesses.
But oftentimes, startups’ appeals for funding are focused on the wrong things and end up hurting their cause more than helping. These mistakes come from some common misconceptions about what makes a startup appear profitable. To name a few…
1. Prior Industry Experience isn’t so Important
A lot of startups approach VC investors by flaunting their business credentials.
MBAs and proof of entrepreneurial backgrounds may sound nice, but in truth, they aren’t such a big concern to many investors. It’s understood that successful figures in tech come from everywhere, many of whom are college dropouts. In fact, many people believe that someone capable of entering a field where they have no prior experience can be beneficial for the fresh perspective they bring.
What matters most to VCs is that a startup is able to demonstrate insightfulness about their market, and discover the opportunities before them. A team doesn’t need prior industry experience to accomplish that, they only need understanding and ability.
2. Being Completely Unique isn’t really a Benefit
Some find that starting a business in its own unoccupied space is best. The logic being, there’s less competition so people are more likely to choose your product.
But if a market is not very competitive, it usually means there isn’t very much demand. This can be a warning sign for VC investors. Especially if the reason a market is still neglected is that other startups have tried and failed in that area.
It isn’t impossible to make a breakthrough product or service out of the blue (just look at Uber). But it’s also perfectly viable to model a startup that effectively meets an existing and competitive demand (just look at Lyft and other ride-share services).
3. Growth isn’t Shinier than Sustainability
There are two kinds of businesses. Those that take flight and crash, and those that prepare first—then take flight—then soar.
Point being, the idea that a startup demonstrates worth by growing fast with little mind to long-term costs…well, that doesn’t pay off more often than not. Over-eagerness is a very real threat with new businesses, and more VCs recognize the value in slow (but steady) starts.
In the end, if it comes down between two startups, venture capital is likely to be awarded to the company that can show they not only have the potential to be lucrative, but the foresight to stay afloat as well.