5 mistakes startups make despite investable ideas

The investment sentiment in India has transformed significantly over the last couple of years with a rising interest in supporting potential ideas. The VC fraternity, which was earlier more inclined towards writing larger cheques, is now open to making smaller investments, driven by the “Fear of Missing Out” factor in terms of getting innovative ideas.

Apart from VCs, pools of private investors and accelerators have come out to join the bandwagon of fostering entrepreneurship across the nation by empowering early-stage startups. Highlighting the shifting trends in the startup ecosystem, Prajakt Raut, Founder of Applyfi (The Hub for Startups), at Innofest 2016 stated that lots of incubators and accelerators are -- apart from handholding startups -- also providing funds in the range of Rs 10-15 lakh.

Today, the angel network is not restricted solely to Indian Angel Networks, Chennai Angels or Mumbai Angels, but has penetrated into smaller cities through the likes of Chandigarh Angel Network, Rajasthan Angels and Indore Angels, in an attempt to support startups in every nook and corner of the country.

The competition is huge when it comes to getting funds. Not everyone can get funded. Out of thousands of proposals, only a few startups managed to get funding, and the ratio of non-funded ideas versus the funded ones is daunting. With this in mind, it is important to steer clear of the mistakes that many startups make when approaching investors.

Here is a list of a few mistakes:

• If one fails to build credibility around the idea, adequately expressing why this idea will work, the chances of getting VC money start reducing. A lot of ideas are half-baked and, therefore, entrepreneurs need to really work hard on their ideas before pitching in front of investors. Spending time on building the concept is very much consequential when it comes to achieving scalability.
• Knowing your target before building the product is essential if one wishes to build a successful venture. For example, if a startup is working on a medical device, it is very crucial to visit the doctor and ascertain whether the product has the capability to address existing problems. Investors shy away from products that lack market competitiveness and proper analysis.
• A legion of entrepreneurs is coming up with innovative ideas and products, but if there is no proper business model around these ideas, getting the investors’ attention may be a distant dream for many. However, investors are hunting for innovative ideas and are very much eager to invest; the only important factor is that the entrepreneur meets the criteria in terms of having a great understanding of how to build the product.
• Many a time, the ideas have the potential to generate huge business revenue, but the entrepreneurs fail to demonstrate in front of investors how that particular idea will work and address the pain points of the target market. Transparent communication always helps in getting the attention of investors.
• The investor fraternity, be it angels, VCs or institutional investors, raise money and invest in startup ideas by holding a percentage of equity, which they sell at a later stage to make money. VCs are looking for an idea that has a strong USP and the ability to capture more market share. So, the core issue is scalability, which comes from creating differentiation in the market.