The startup era is booming nowadays, with 40% of employed people wanting to quit their job and start businesses. One of the most interesting startups to found today is ‘Mobile app’ startup. Unfortunately, investors are not interested in startups at idea stages. It takes a lot of craftsmanship to make a ‘Great Product’ from a ‘Great Idea.’
If you have developed a mobile app, the following are strategies that can help you on the pathway to establishing a successful startup.
1. VCs see feasibility
If you approach investors without prototypes, they might dismiss you. Venture capitalists do not forecast or speculate anything. They get numerous approaches with the working models. VCs knows that many people reach the ‘Idea’ stage,’ but only a few people touch the next stage.
2. Competitive Landscape
There is a very tiny possibility that the same type of mobile app idea is already on the market or is already launched but with a difference. You have to show anything that distinguishes your startup.
3. You must have investment basics
After founding a mobile app startup, you ought to know almost all its terminology. Or else, you will be referred to as a ‘Dumb founder of a rusty startup.’
4. Get a Co-founder
Running a business alone is risky. Co-founders not only share capital and risk but also technical skills. It’s really rare to find one person who possesses all the necessary qualities: management technical, and sales.
With 75 of the fortune 100 active in corporate venture capital (CVC) and 41 of them having a dedicated team, CVC is no doubt an important source of start-up funding. Big names in the space include Google Ventures, Intel Capital, Cisco Investments and Dell Ventures. In an interview with Forbes, Christine Herron highlights top three things that will help you attract CVC to your business.
Know that Numbers Matter
CVCs want to hear about numbers before they can decide to invest in a company. It’s true that return on investment is not the only motivation for CVCs to invest in a start-up. However, without a demonstrable possibility of success, it will be difficult to convince a CVC to fund your business.
Have a Diverse Team
Some CVCs such as Intel’s Diversity Fund will not invest in your company unless you have a diverse team. CVCs believe that a diverse team can pull from a wide range experiences, backgrounds and skillsets increasing the chances of success.
Move with the Trends
Intel Capital has recently invested $60 million in 15 start-ups that are data focused, indicating a bias towards companies that are moving with the times. CVCs are alive to the quickly changing customer expectations and won’t put their money into your business unless they are satisfied that you will meet customer expectations. If you fail to meet customer expectations, you can as well prepare to leave the market before you are forced out by the competition.
Social venture capital focuses on companies that are looking to provide real social change. It is a form of investment capital that is usually offered by an impact investor or a group of social venture capitalists. Social venture capital often backs companies that want to solve social and environmental issues, such as curbing climate change. The companies can aim to solve these problems either directly through their service or product, or by implementing certain programs in this area.
Social Venture Capital is a philanthropic form of investing because it aims to find companies with a strong social conscience. Although social venture capital focuses on investing in socially responsible companies, it still emphasizes returns. It is not simply provision of donations or a form of charity work. Social venture capitalists are interested in investment opportunities that have a healthy return on investment.
Social venture capital is mainly provided by specialist social venture capital firms and impact investors. Almost all major venture capital firms have special social venture capital funds that operate alongside traditional funds. Additionally, both local and international development banks can provide social venture capital.
There are many types of social venture capital investors. The common ones are social venture accelerators, social incubators and funds, non-profit oriented funding, and business angels.
There are several good reasons why a start-up should consider venture capital support. Venture capitalists can get you the funds you need to get your business moving forward. However, if you give minimal thought to the risks ahead, you will not benefit from venture capital. Entrepreneurs can make their venture deals s safer in several ways.
Unless you want to remain entrenched at square one, know the basics. Learn all the terminologies and mechanics of venture capital. You must study the details and language of investment. Differentiate between common stock and preferred stock. Get comfortable with all VC concepts to avoid taking your shot in the dark.
It is important for entrepreneurs to surround themselves with people who raised money before. It’s a good idea for entrepreneurs to surround themselves with smart people. Mentors and people in incubators, accelerators or start-up communities have traveled the venture capital path before and can help you spot the landmines.
It is also important for entrepreneurs to understand investors’ interest. Your ability to change during negotiation depends on who has leverage. The relative negotiating power of an entrepreneur and a venture capital depends largely upon how beneficial to each is the option of not r making concession. To raise your likelihoods of attracting many investors, you must know their interests.
A new study by research firm PitchBook shows that the U.S venture firms deployed $84B in over 8,000 companies last year. The last time this much money was invested in tech hubs, numerous venture firms lost their money in the dot.com bust. That is far less likely to occur today. According to John Gabbert, PitchBook CEO, and founder, although the figures are comparable to the era of dot.com, the venture capital ecosystem is healthy and is driven by different dynamics.
There is a disadvantage for investors. Many investors are finding it harder to get their money out because a lot of companies are staying private longer. The report said that the number of exists dropped for the third consecutive year, the lowest since 2011.
Companies opting to remain private for longer means that start-ups continue to seek for funds from their venture capital backers, mostly asking for larger deal sizes as the companies grow. Non-traditional investors continue to boost this trend, backing companies that would have sold themselves or gone public.
According to PitchBook report, unicorns, as known as billion-dollar-plus companies, raised over of $19 billion in the capital. This amount is more than they have raised in any other year on record. Some of the largest deals last year were Lyft Inc.’s two rounds totaling over $2.5B, WeWork Cos.’s $3B injection from SoftBank and $450M raised by Elon Musk’s Space Exploration Technologies Corp.
With cryptocurrency and Bitcoin going mainstream, venture capitalists are starting to adjust their investment and fundraising strategies. Last year was characterized by the Initial Coin Offering, where start-ups raised funds by creating and selling their token/coins, instead of their traditional method of offering equity to investors.
Initial Coin Offering started as a way for technology that does not have a business model to raise capital. The trend skyrocketed in June last year. Ninety- three percent of early adopters’ projects were funded. Some early adopters managed to raise millions of dollars based on a basic business plan (called a whitepaper in the industry).
Over the past few months, however, we’re seeing the rate of successfully funded ICOs starting to drop, with investors less likely to fund speculative projects. However, the adoption rate of cryptocurrencies is growing, as more companies are starting to have Bitcoin as a method of payment. Microsoft, Vargina, and Expedia all currently accept it, while Wal-mart and MacDonalds are expected to adopt it this year.
Venture capitalists are devising new ways to deal with the frenzy of cryptocurrencies. Instead of seeking equity in a firm, they are purchasing the rights to acquire coins/tokens ahead of ICOs via legal contracts.
Having a good team, good product and customers is not a guarantee that venture capitalists will invest in your start-up. VCs have been saying “no” to numerous good start-ups and founders. There are several reasons why VCs may decline to work with good start-ups.
Venture capital often invests according to fund strategy, meaning VCs invest in specific stages of companies. Idea stage companies that try to raise funds from an early stage fund are told to come back after gaining more traction. Early stage companies trying to raise capital from growth equity funds may also hear the same rejection.
VC can reject a start-up on the grounds of a “competing portfolio company.” Venture capital involves picking of winners. Once investors choose to invest in a start-up in a particular space, it is difficult for them to bring in another similar start-up. This is because the start-ups might end competing with each other.
Lastly, venture capitalist can reject your start-up because you are too late to the game. Trends come and go, and investment opportunities are not exceptions. As investment in social media continues to wind down, another investment may emerge as the next hot thing.
References Why startups get rejected by venture capitalists (and why Warren Buffett is involved) https://www.entrepreneur.com/article/243474