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Top 3 Reasons Startups Don’t Receive Funding

Northeast Ohio
Top 3 Reasons Startups Don’t Receive Funding

Last month Innovation Fund Northeast Ohio introduced the latest group of companies to win funding awards. This money is usually the first market validation that a new business idea has the potential for success. But there are a number of reasons why a good idea might not be awarded funding—at least not on the first attempt.

1. Presentation clarity

This is the most common reason. We have seen some excellent business ideas in the last six years that did not receive funding because the entrepreneur could not clearly explain his or her approach to acquire customers, plan for raising additional capital, or simply what problem he or she is trying to solve. In a startup environment, the entrepreneur is the business, and they should always be selling—whether to customers or to investors. At a moment's notice an entrepreneur should be able to explain the basic elements of their business to anyone. Not being able to do that, or confusing people in the process of doing that, raises a flag about the entrepreneur's ability to execute a business plan.

2. Customer acquisition path

Another reason we are hesitant to award a grant is the entrepreneur's approach or pathway to acquiring customers. This isn't Field of Dreams where if you build it they will come—it never is. Customer acquisition cost and gaining awareness is critical. It's what makes business-to-consumer companies so challenging—and the answer cannot simply be "social networking." An entrepreneur needs to have thought through the various approaches to customers and chosen a proven, cost effective way to put their product in front of them.

3. Our requirements

One of the last and most common reasons startups don't receive Innovation Fund Northeast Ohio awards is simply due to the metrics to which the fund is held accountable. Innovation Fund Northeast Ohio uses State of Ohio funds to make its awards and its ongoing success in continuing to receive State funding lies in its portfolio meeting two specific metrics: add-on investment and/or revenue and job creation. Innovation Fund Northeast Ohio is an economic development tool and the belief is that companies with the potential to attract follow-on funding will be the same companies that have the ability to create high-paying jobs in Ohio. As we look at the business ideas that come through the application process, we are asking ourselves, based on our experience, if this company is likely to achieve these outcomes.

Innovation Fund Northeast Ohio will always have to say no more often than it says yes. But the good news is we can help entrepreneurs determine first if their company is a fit for Innovation Fund Northeast Ohio and if it is a fit, guide them in avoiding the mistakes commonly made when applying. Even the greatest technology idea still needs a solid presentation, a clear message, and a practical approach to how it'll make money.

Dennis Cocco is the director of Innovation Fund Northesat Ohio. He oversees the fund's management and serves as a mentor to its portfolio companies. Dennis' 37-year career includes product and application research and development, as well as technical service and marketing.