When Start-Ups Dont Start
10Reasons Start-up Ideas DontGet Funded
Keith has been made redundant six
times in the past 18 years! Yes, he
picked a few duff companies to work
for. Though, in his defense, some of
these were in the dot-com boom-and-
bust years! POP, they went!
He knows and understands the issues
businesses face and how they must
constantly review and in some cases,
reinvent. Keiths main message? DOIT!
If you think you can stand still and
do nothing, you will certainly get left
behind and ultimately fail.
Keith Grinsted, MBA, FRSA
Abstract: This article looks at some of the reasons start-ups
fail to get funding. It highlights 10 reasons why this may
be. This is by no means an exhaustive list but is indica-
tive of the most likely reasons. Entrepreneurs may have
great ideas but they need to structure the way they bid
for funding if they are going to be successful.
Keywords: start-up, entrepreneur, passion, career develop-
ment, career change, enterprise, business, funding
When start-ups dont start: 10 reasons
start-upideas dont get funded
Everyone has a great idea at some point. Trouble is
very few of us have enough confidence in that idea to
take it forward. Also, just because you think its a great
idea, will anyone else? Will someone be prepared to pay
money for it?
In this article, I assume you have a great idea. Youve
tested it and people are prepared to buy it at a cost that
will return you a profit. I also assume you have the guts
to take it forward! The next stage is seeking out funding
to take your idea forward. You may need funding for fur-
ther development, test marketing, production costs, or
simply working capital. Your idea is so great what could
possibly go wrong?
Well, here are ten reasons why you may be unsuccessful
in getting the funding you need (and there may be more!).
1. Its just an idea and is not fully developed.
2. The market is too small and not scalable.
3. Your pitch is poor.
4. You really havent thought it through.
5. Youve not got the right team.
6. You havent properly researched the funding market.
7. The figures dont add up.
8. The need for your idea is not identified.
9. You dont know where the customers are.
10. You have no prototype or convincing case.
Expert Insights 1
 When Start-Ups Dont Start
This is not, unfortunately, an exhaus-
tive list, and some of them may be inter-
linked. But they are among the key reasons
start-ups fail to get the funding they need
to take their business forward.
Just an Idea, Not Fully Developed
Im an ideas person and am constantly
coming up with new ideas. I warn peo-
ple that work with me Ill come up with
loads of ideas, many of which will be rub-
bish for one reason or another. However,
among them will be the occasional gem!
I tell them to not just accept everything I
come up with, but instead be honest with
me! If they think it is a non-runner and has
no wings, no legs, or no wheels, then say
so! Id rather find out as soon as possible if
something clearly is not going to work.
At that point you have two choices. If
you are not too attached to the idea, then
you can simply drop it! If, though, you feel
it is a good idea, then you can take what
others say are its shortcomings and revisit
it. Listen to what they say, take their ideas
or misgivings on board and see if you can
modify your idea so it will fit better with
what your colleagues say.
Now, if you have an idea you believe is the
best thing since sliced bread it is very easy
to rush out there and start telling everyone
about it. You may not have thought through
how you can deliver this idea, what the pro-
duction issues may be, how big the poten-
tial market may be, or whether you can sell
it and make a profit. Often the latter is a
problem because start-up entrepreneurs
forget to cost their own time when working
out realistic, profitable, resale prices.
One of the classic failings I have encoun-
tered is when would-be entrepreneurs
invent a product or service because its
something they have a need for. To them,
it is a no-brainer. What they dont think
through is just how many other people
there are with the same needs.
All too often there is not a sufficiently
large market to support their product or
service. The best solution? At every stage
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of development, sound out others for their
true opinion. Engagement is the critical
factor throughout as you dont want to
waste time unnecessarily.
Market Too Small, Not Scalable
Youve put together this great idea and
believe there is a market for it. There are,
however, two potential failings here.
The first is that while there may indeed
be a market for your idea, the market may
not be big enough to sustain growth and
profit levels. You have a solution for a niche
market, and you know there is a need. But
what if you need to sell 1,500 units per
annum to make a profit and the market
will only sustain sales of 1,000 units per
annum? Yes, you have established there is
a market and, yes, you can achieve some
significant sales. But you will always be
running at a loss! Unless you can find
another market for your product, you are
never going to achieve your goals.
The other potential failing may be that
you have the capacity or capability to
produce the 1,500 units in the previous
example, but cannot build more. This could
be for many reasons, including shortage of
specific resources.
Lets use an example. You set up as a
driving instructor. You lease your car. You
take out adverts in local papers and pay a
virtual assistant (VA) to handle calls and
schedule your appointments. You know
what your fixed costs are and work out the
hourly rate you will charge pupils to cover
these costs (plus fuel), and leave you with a
surplus to cover your own living costs. You
may decide it needs 25 hours per week of
tuition appointments to cover your costs,
and another 25 hours per week to gener-
ate the necessary surplus. But how can you
scale that up? Your main resourceyouis
limited. There are only so many hours you
can safely work in a week.
Ive had some experience advising driv-
ing schools, and they realistically need
three or four cars (and instructors) on the
road, delivering 40 hours each, before they
 When Start-Ups Dont Start
start to make progress. Failure to consider
these factors will set alarm bells ringing
with potential funders.
Your Pitch Is Poor
You have a great idea and you are passion-
ate about your new product or service. But
have you thought through the benefits to
your prospective customers?
Anyone that has spent time in network-
ing circles knows how important, and how
intimidating, delivering a 60-second pitch
can be. Pitching to a potential funder, who
may hold your future in his or her hands
(or wallet), is even more stressful. How-
ever, the 60-second pitch is a good place to
start. If you cannot articulate the essence
of your product or service, concisely, in
60 seconds, then you are unlikely to suc-
ceed in 60 minutes!
The challenge stems from within your
own mind. You know everything about
your new baby as youve been there from
the outset. In fact, you have so much to tell
people that it can come out in a muddled
jumble.
You have your own idea about what the
important bits are, but they may not be
what your prospective funders are looking
for. Through your market research, you
should have uncovered their pain and
focus on relieving that pain.
Every good book has a beginning, a
middle, and an end. Your pitch should be
no different if it is to be successful.
To help with the structure, there is a
mnemonic I always useAIDA.
Attentionthe headline, the opening gam-
bit to get their attention and get them
listening to you
Interesthaving got their attention you
now need to feed their interest and get
them wanting to know more
Desirethis is the critical phase as you
now need to get them wanting your
product or service, or perhaps investing
in your business
Actionand this is where so many go
wrong! Having drawn them in and got
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them wanting your offering, you must
then tell them howhow to invest in
you; how to engage with you; and for
customers, how to buy from you.
If you fail to close the pitch with an
action point you have wasted everything
that has gone before.
You Really Havent Thought
ItThrough
This follows on quite well from the last
point and illustrates a lack of follow through
thinking. You must always consider the
potential investors position: Whats in it
for me?
You want their money, their investment
in your business, but what are they expect-
ing in return? Indeed, what is their motive
for investing in your businessshould they
choose to do so? It is important you under-
stand this; otherwise, you will be in danger
of being in conflict before you even start.
Investors will have a set idea on what
return they expect on their investment.
Unless you are pitching to friends or fam-
ily, the investors will be more experienced
than you in this area and will have a strategy
they follow based upon their experience.
It may well be they are looking for a finan-
cial return within a given time scale. There
may well be an equity element. They will
want a share in your business in return for
the investment of their money and possibly
time. They will also have an exit strategy.
For example, they may invest say $100k in
return for 25 percent equity in the busi-
ness. They may expect the $100k back over
the coming 3 to 5 years and also to realize
their 25 percent equity stake at a premium.
They may allow you to buy back that
equity. If you are doing well bythen, they
may choose to retain the equity to take
advantage of future growth.
If the investors do not believe you have
thought through this process, it will soon
be exposed. If you are not likely to be in
the position they expect within the given
period, they are unlikely to support you.
You cannot assume everyone has your best
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