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Is Venture Capital Investment Really Accessible?

By Carlos del Rio - Credimotion


By Carlos del Río | CEO - Wed, 03/15/2023 - 16:00

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We hear almost everywhere that there is great venture capital appetite, all social networks are flooded with related publicity and month after month, new investors are launching investors offices focused on attracting venture capital, but does this really solve any need?

First, we must answer a series of questions before we think about looking for an investor.

Is your company a candidate for this type of funding? Are you at the right stage? Do you have a solid team? Do you really solve a specific problem? Are you a traditional company or really a startup? How fast can you scale? How much of the market will you cover? Where else could you expand to? What is your growth path? How much funding do you need? What level of commitment do you have? In short, the questions are  almost endless, but the truth is that having clarity on all of them does not assure you any capital raising. Let's go into detail.

More than 90% of the "startups" that emerge year after year fail to raise capital due to various factors. In some cases, it is because the product is not enough, in others because the startup does not have the right fit, or  the growth is not attractive enough, the stage is too early, it is  already too far ahead, there is a lack of users, etc. etc. Then, the fundamental question arises: Are you sufficiently connected in the investor environment?

In 2010, Adam Neumann and his partner had the great idea of creating WeWork, a few months into 2011, Neumann managed to raise his first USD million. He met Joel Schreiber and together they embarked on their great nine-year journey to achieve an almost US$47 billion valuation.

This makes us wonder what is the most important component to be able to raise your first capital round. Is it luck? Are you in the right place? Well, what the hell do we have to do to go down that road?

Unfortunately, and knowing that  surely many people would say that it is a set of several factors that can lead you to success regarding the issue of raising capital, but the truth is far from the perception of each of these people since none of these arguments complete the answer to why more than 90% of  startups fail to raise capital.

It is extremely important to mention that within that 90% of companies, there is a large percentage that are really far from being able to even realize their business proposal. Having said this, the truth of why the rest of the good business proposals and great investment candidates fail to raise capital is due to a very simple component: lack of network. That's right, if you are one of those people who does not have a previous relationship with a fund, family business, or F&F (family and friends) with sufficient resources, let me tell you that you have the same probability of winning the lottery as you do of finding an investor. This can amount to ratios of millions to 1. That is; it is more likely that you will  die in a plane crash than win the prize. Sad but true.

In 2019, a startup emerged from among the 100+ annuals in Mexico alone. Its initial value proposition promised something totally disruptive and with great, but truly great growth potential. Due to the previous relationships of one of the partners, they managed to raise US$650,000 (WOW). By mid-2020, they had changed their business model (pivoted), which in many cases is a good thing, but unfortunately, it was more of a romance, an idea of something that was never going to happen, regardless of the reason they managed to raise so much  money after just a few months, money  started to rain down, along with  investors, from all sides. 

After a while, and mowed down by the downpour of money, (where has that  happened before? Right! Neumann) reality set in and the company was faced with explaining its excess "cash burn."  Can you imagine burning over US$100,000 per month in payroll alone and having an MRR of no more than US$10-12,000?. Sorry, I got sidetracked from the main topic, I just haven't gotten over that yet … 

Getting back on track, there are a couple of morals to this true story: 1) It doesn't matter that your product isn't the best, nor that your product is too good, if you want to secure a capital raise it is imperative that you have the relationships necessary to make it happen. That's right, being an "adviser" in this environment for almost 30 months I have seen through various accelerators and other media too many startups trying to connect with capital raising and I really must say that more than 10% of these are pretty good ideas, and many of them have already achieved a large number of users and important operations as well as high MRR. Unfortunately, they do not achieve a capital raising.

Speaking of accelerators, I did not find a source that tells us how many exist today, but from my own experience and comments from more than 37 startups, accelerators really help you to shape and create the necessary institutionalization to leave you armed for a potential investor, although that does not guarantee that you will get an investor to invest in you. And continuing with the questions, then, what to do?

Unfortunately, there is no exact formula that will get you to the success of raising capital, but you can at least get a little closer if you follow these tips:

- Genuinely seek to solve a problem in your industry.

- Be very straightforward in letting the business grow. 

- Look for the best relationship within the industry; find a partner who is in charge of capital markets, investor relations and/or a sponsor — someone who will bring you the resources and relationships you need to connect and grow your business.

The final question is how the heck did Neumann  raise and value a company at almost US$47 billion in nine years?

Well, it was a bygone era. Investors have changed; now, they are looking for growth with profitability. Do you really want to live the dream of a startup? Unless your last name is Musk or Zuckerberg or Gates or Jobs and you are a genius with an IQ over 150, you will have to adapt and most importantly, focus on relationships, create a high-value network and surround yourself with people smarter than you.

Please don't get discouraged. At some point, you will achieve your fundraising, others have achieved it, you just have to know what you will face. My business has faced more than 30 “Nos,” even though we are already profitable and have traction, although we are still walking. 

Let me leave you with a final thought: It is much more important, and you will achieve more things through perseverance than from  talent; ergo, Ray Krock, Harland David Sanders, and millions of other successful people. 

Best of luck! 

Photo by:   Carlos del Rio

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