Friday, July 19, 2024

Falling into these 3 traps means you will never raise VC funding

Over the years, I’ve spoken with a quite a few startup founders. Many of them are smart, likable and have really great ideas that they’re able to convey in a pitch deck. Yet many of them struggle to get funded. Why is it so hard to get a term sheet?

If everything seems to be going well, but you’re not getting the traction you think you need for your fundraise, it’s probably because you’ve run into one of these three problems.

The market is too small

There are a number of incredibly cool products that just don’t have a market that’s big enough for general adoption. For example, it’s possible that you are building an accessory that makes crop-dusting fields 30% more efficient. On the surface, this may seem like a good product in a great market. The people who want to buy your product are excited about it, and you make sales pretty easily.

The problem, however: There are only so many crop-dusting planes in the world, which means that once you’ve reached market saturation — that is, every crop-dusting plane in the world is using your product — you are unlikely to make additional sales.

Crop dusting is obviously niche, but there are less obvious examples, too.

I recently spoke with a founder who had a really elegant solution for how to help people optimize their meal planning so the produce in the fridge that goes bad the soonest gets eaten first. On the surface, it’s an important problem: Reducing food waste is objectively good. The founders had spoken to a lot of potential customers, and everybody agreed — food waste is a problem, and they would love to have a solution. The pitfall was that the startup hadn’t asked its customers what they were willing to pay for the product. It turns out that this was a $100 piece of hardware, and that was the problem: The Venn diagram showing people who care enough about the problem to spend $100 on a piece of equipment to fix it and didn’t just throw the food out and buy new food when it went bad turned out to be almost nonexistent.

Falling into these 3 traps means you will never raise VC funding by Haje Jan Kamps originally published on TechCrunch

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