Seed funding is easier to bag and utilize – hire a small team, begin operations and launch the product in the market with a decent hype. But they’re not enough when it comes to a stage where the startups need to improve their technology, hire more people and up their marketing for increasing their customer base. And that’s where the series A funding walks in.
Venture Capitalists and private equity firms lead the series A round of funding at regular intervals through the year, but the process isn’t a no-brainer. Startups face multiple hurdles before being able to raise a modest amount of funding in this round of investment.
5 challenges faced by startups in series A round of funding
Here are the top 5 challenges faced by most startups before their series A round of funding:
1. Planning efficient capital burn
Most of the times startups face a difficulty in deciding where exactly they want to deploy the raised funds – while some may want to use it towards hiring the right team, some want to target marketing with it to stimulate the right amount of market sentiments for gaining a customer base.
Tip: Set aside some time to chalk out your plan of action and decide the areas that need attention first.
2. Calculating cost of customer acquisition
Out of all other parameters, calculating customer acquisition costs is a tough nut to crack – what are the scalable channels of acquisition, how much would acquiring each customer come out to be, etc. Startups are moving away from paid search models, as they are becoming costlier by the day and the results don’t stay for too long.
Tip: Plan on executing relevant paid marketing campaigns on social channels for customer acquisition.
3. Executing effective talent acquisition
Be it small businesses or established ones, hiring the right people has always been a herculean task. The human resource market estimates that 50% of hiring failures occur within 18 months of onboarding a new joinee. A lot of startups focus on hiring talent, but fail at generating the desired ROIs because the team isn’t able to follow through a plan, ending up bearing bigger losses.
Tip: Prioritize your hiring – only hire as many people as required to run every aspect of the startup efficiently.
4. Demonstrating a scalable business model
It is a must for startups to create a scalable business model that has the potential to bring in maximum profits over time as well as eliminate any excess costs being drawn into operations, to grow exponentially. Startups must focus on market validation of their products and services, as the market is already seeing hundreds of individual business models of various ventures – taking too long might increase the time required for revenue generation and decrease the chances of success.
Tip: Come up with an idea that is not just unique and original, but also supports your business model through and through.
5. Selecting an investor
Most startups face difficulty in choosing the right investor for their products and services. Finding someone who believes in their vision and allows them to execute it without causing any hindrance, is something that doesn’t come easy to many.
Tip: It is important for a startup to select a resourceful investor who can draw them out of sticky situations on their way towards the goal.
Startup funding doesn’t come easy. Before going in for the series A funding, ensure you’ve done your bit of research and preparations to ace it, and come back with exactly what you wanted for to grow your startup by manifolds.
Tips to overcome a ‘no’ when seeking funding
Fearing a no from the investors? Here are 5 tips for overcoming it when seeking funding:
1. Familiarize them with the concept
Before starting with how your product/ service is going to be the next best thing in the market, familiarize the investors with the idea and every little concept put together to create them. The more relatable you are, the quicker this is.
2. Show them some numbers
Every investor is seeking for only kind of a startup – the one that has its wheels on and is moving ahead progressively. Get your statistics in place and get ready to show them some real numbers – traction, from the point you launched your product into the market.
3. Do your own research
There are many who quote results from studies conducted by various universities, agencies and businesses. Stand out by talking numbers that come from proactive surveys you conducted over time before taking the product to the market.
4. Focus on one investor at a time
It is human to get carried away when you see so many esteemed investors at the event. Keep your focus, and try to bring in only one investor at a time. Once you have a resourceful investor onboard, the others will come in a little easily than the first.
5. Create the illusion of scarcity
A product or a service doesn’t grow unless and until there is a need for it in the market. And the investors seem to know the fact all too well. While you create an illusion of scarcity in your domain, ensure that it is backed up with facts and you have at least one thing that the others don’t. For those who are new, it is advised to start by bootstrapping the company, testing the market waves and then getting into the investor pool.
Lastly, no matter how much funding you raise, always be wise when it comes to spending the capital. Look at your recently drawn in funds like the last round of financing you will ever raise – it helps you set your goals better, instead of taking things casually. The assumption that you can raise more money anytime, is nothing but insanity.