During the life of a tech-startup, every investment round has its story, objectives, and challenges. By now, the rapid growth in the funding deals can be clearly noticed can be evident. In the Kingdom of Saudi Arabia alone, and in the first half of 2020, the investment deals in the early stages were 81%, 14% for Series A, 5% in Series B, and the total invested amount was $95 million (356.25 SAR) – according to MAGNiTT.
This data gives us an insight into an upcoming wave of growth in our ecosystem. With each new wave, we can see the importance of gearing up to face different challenges in uncharted territories in the way of tech-startups growing from early stages to series A.
Different are the needs of the ventures depending on their stages. In the Seed Stage, founders mostly look for funding to serve several reasons such as building, operating, or launching the MVP, hiring the key team members, or renting a working space… etc.
However, the sources of this kind of funding differ, whether it’s limited to the founders’ savings, the funding programs sponsored by governmental and private entities, angel investors, crowdfunding, or strict Bootstrapping.
After this early stage, and while the company is growing, the need to start a series A round raises for other reasons; geographical expansion, technology development, acquiring a bigger share in the market, and more other reasons. In this round, Venture Capital investment is mainly targeted by the founders.
In this blog article, the light is shed on some of the common and mostly encountered challenges by entrepreneurs who are looking to launch their series A investment round.
The unclarity of the vision when it comes to the uses of fund prioritizing
Due to unclear vision, the entrepreneur may fall into the dilemma of prioritizing the uses of fund and that ends up affecting the designation of the needed funding amount thus the negotiation process with the investors. The founder might assign an amount way more or less than needed for a certain usage; they could see significant importance to staying up to date with the latest generation of tech inventions, or hiring talents and team development, or marketing in general.
The inconsistency of the amount that needed to be raised and the targeted uses assigned by the funder, affect the investors’ level of trust and thus the planned timeline of the fundraising.
Customers acquisition cost
The cost of new customer acquisition can be hard to predict, and that puts the founders in a challenging position when planning to acquire a bigger market share. Moreover, when the process of discovering new sustainable channels to acquire more customers is weak, and that can put the founder in another challenging situation.
Usually, startups use common -or currently seen as traditional- channels such as paid ads to reach customers, and those channels are saturated by now due to the vicious competition. Here comes the need to invent more creative ways of customer acquisition.
In a previous article, we discussed one of the important strategies in attracting customers and increasing sales via employing the human need for value assertation that you can read from here.
Unscalable business model, unqualified team to run it, or else…?
The success of a startup depends on its scalability:
A business model that’s scalable means continuous growth over time, which increases the revenue and reduces the cost. However, unscalable business models usually face so many difficulties in fundraising.
The eligibility of the team:
The business model might be just fine, but the issues raise when the business model moves to the execution; the outcomes are not matching the planned results. That may be attributed to the incompetency of the team to the project itself. So, here it comes, the importance of match-making between the right talents that are suitable to the business model and those who have the entrepreneurial spirit.
As usual, we focus on the significance of the customer service soldiers, especially when working in startups, the efficiency of those talents cannot be compromised.
On the other hand, the team members might be perfect for the execution of the project, yet the problem lays in the quality of communication between the members themselves, or with the leader, and that can hold up the progress of the work.
As mentioned above, the acquisition and the training of the right talents is a challenge that’s always faced in tech-startups, it can be costly and unguaranteed. Yet, by following some well-thought-of steps, the company can attract and retain suitable talents, and double the ROI on the hiring process. In that regard, you can check out this article published on MAGNiTT.
Lack of product validation in the market:
- How many customers tried your product so far?
- How many of them continued using the product or service?
- How many of them got back to using it in a specific period of time?
- Did you communicate with those users to assess their feedback?
- And do they represent the target audience?
Product market validation is the first measure to raising a series A round, yet it has to be representing the target audience very well.
For this measure to be specific, the entrepreneur depends on a periodic study to have more insights revealing how effective is the product in the current target audience’s lives while keeping on pushing them to provide their feedback on the product every now and then. That will give the founder a better understanding of how the product can be improved or scaled in the future.
Pitching to the right investor
No doubt that raising is a challenging process by itself, and random investors targeting can make it even more difficult. In a way, investors targeting is just as customers or clients targeting because in this scenario investors are the clients.
As we wrote before, some entrepreneurs think that the implementation of sales and marketing skills is limited to the target users, but in reality, it goes way beyond that to every kind of connection the founder seeks to acquire and every kind of goal they want to achieve (like fundraising). So, we can see how founders go wrong when thinking that fund round closing is tied to the available number of investors in the region and how much cash they have.
Even investors and VCs differ in their goals, personas, experience, points of attraction, and the value they can bring to the table of a specific kind of venture or industry.
Focusing on raising
The duties and tasks of the entrepreneur could get easily messy and intertwine with so many matters in the business. So, founders have to master the art of delegation in order to solely focus on raising effectively.