David Cummings on Startups

#1 Reason Startups Can’t Raise Money

Written by

David Cummings

in

,

Earlier today I was watching a video where Mark Suster (entrepreneur turned venture capitalist) was interviewing Scott Painter, the CEO of Zag. The best part of the video was where Scott lays out his company’s dashboard and talks about the metrics that drive his business. Take a look at minutes 43-48:

In the video, as part of talking through his company’s dashboard, Scott hits on the number one reason startups can’t raise money, without mentioning it directly. The main reason an entrepreneur isn’t able to convince an investor to invest: the entrepreneur can’t demonstrate defensible, metrics-driven data on how he/she is going to build a large business. Scott’s dashboard includes the following information for the past 30 days:

  • Unique visitors
  • Active prospects
  • Sales (cars sold)
  • Revenue

While this idea makes sense, it is amazing to see how many entrepreneurs don’t fully realize it, spend a good bit of time trying to raise money, and end up disgruntled with investors by the end of the process. My recommendation is to build a story, with metrics, of how you’re going to build a big business, and then paint the picture for how the investor is going to make an out-sized return investing in your company.

What else? Do you agree?

Note that this is especially true in markets that are more conservative with startup investing like Atlanta.

Comments

2 responses to “#1 Reason Startups Can’t Raise Money”

  1. Wayt King Avatar
    Wayt King

    David, you touched on a point I want to amplify: entrepreneurs should stop blaming investors for their failure to raise money. It’s not Atlanta’s fault. It’s not the economy’s fault. It’s not the angel community’s fault. It’s not Noro’s fault. When I was a post-bubble entrepreneur, I blamed our failure to raise Series A for 18 months on the Atlanta VC community; in hindsight, we were unfundable because we had no plan to build a business. We were just 6 middle-aged white guys with corporate backgrounds looking for a problem worth solving in the cable industry. We eventually got lucky and stumbled across a good problem, solved it, and built a good business.

    I’ve been an angel investor for 4 years now, on the proverbial other side of the table. And I hear so many entrepreneurs blame their funding failure on “Atlanta” or herd-like VCs or whatever. Until these entrepreneurs look in the mirror and accept responsibility for their unfundability, they will continue to be unfundable.

    Investors are driven by two emotions – fear and greed – and the default emotion regarding startups is fear. You’ve got to overcome the fear and unleash the greed.

    Wayt

    Reply
    1. David Cummings Avatar
      David Cummings

      Thanks Wayt. I think you nailed it that fear and greed drive investors. As a startup, if you can’t paint a picture, with metrics, that taps into these emotions you won’t raise money.

      Reply

Leave a reply to David Cummings Cancel reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

More posts