According to Angelsoft’s Deal Funnel, only 5% of the deals they see end up getting funded. In fact, only 18% of the companies that apply to an organized investor group (angel or otherwise) make it through the initial application screen. Then only 9% actually get to present, with 5% getting funded. This number is actually surprising to me, it indicates that half of the companies that are invited to present get funding. I bet that number is much, much less.
What does that mean for you? Since only 18% of companies are making it past the initial screen, you’ve got to be prepared (obvious!). You have to be ready for funding. Ready for funding isn’t the same thing as needing funding, a point that is often difficult to get across to entrepreneurs and the reason why only 18% of companies get past the application process. Here are a few key things that groups look for in terms of readiness:
- The business is incorporated
- There is more than 1 person on the project, and they are full time
- You have a patent or trademark to protect your IP
- You have a working prototype
- You have at least 1 paying customer, or proof that people will buy it
- You have a go-to-market strategy other than “we’ll hire a sales guy” or “we’ll do a Google ad campaign”
- You have a thought out revenue model with a realistic set of financial projections
- You have a well thought out and written Executive Summary with all the necessary components
- You have a board of advisers or directors with experience in your market
Some of these points are difficult to swallow for most entrepreneurs. How can you quit your day job and work on your business unless you raise money? But here’s the thing. Without the above pieces, all you really have is an idea. And ideas aren’t worth the napkin you wrote it on. Successful businesses are about execution, that’s where the value comes in.
So before you go applying for funding, do a gut check and make sure you’re ready.
