Busting the Myths of Small Business Funding

30 Jul 2016

Michael S Melfi

Michael S. Melfi is an intellectual property attorney and entrepreneur. Michael understands entrepreneurs because he is one. His work with startups and early stage companies has helped him understand how to create the entrepreneurial identity. Additionally, he has authored four books and speaks publicly around the world.

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Securing funding for your startup may seem impossible, but it is no more difficult than making a sale. Fundraising is not impossible, it is an obstacle that requires the proper focus, beliefs, capabilities and strategies to achieve.

Below, you will find several common myths that entrepreneurs face while looking for investors, and how to bust all six:

Myth #1: The investors didn’t get my idea

If you’ve tried to get funding and didn’t succeed, why is that? Do you think the investors didn’t understand your idea, concept or solution? Do you think it was too forward-thinking for them to understand? Maybe that is true, but is lack of understanding really the investor’s fault, or yours?

Investors are focused on projects they understand, but more importantly, in people they know, like and understand. First and foremost, it is on you to ensure you are speaking with the right investor for you. An investor needs to clearly understand what it is you are selling in order to invest their money. Honestly evaluate why they were not interested and why you did not receive funding. Did you clearly articulate what your target customer’s pain is and how your product, service, idea or business will be the solution to that pain? Were you able to explain how you and your team would execute?

The best way to bust this myth is to learn to articulate what it is you do. Often people refer to this as an elevator pitch. An elevator pitch describes the pain and solution you’ve created, and can be articulated in less than a minute. Create and practice this before your next round in front of investors and make sure your presentation is as clear and precise as your elevator pitch.

Ultimately, you need to answer one question: what problem does your product or service solve?

Myth #2: There is so much I need to explain to the investors

You may have five minutes to present to an investor, so get rid of the 75-page presentation.

For more on key pitch deck elements, read “The Anatomy of a Pitch Deck.” Limit your presentation to the most relevant slides that contain what the investor wants to know about your business or idea.

Keep the following key questions in mind:

  • Did you clearly spell out the investment you wanted from them and the return they would get from you?
  • Did you get questions during or after your presentation? Could you answer them all and if not, did you go back after and provide the answers?
  • If the investors said no, did you ask if the deal could be good for anyone else they knew? The world of investors is a tight-knit one, and usually one group knows what another group looks for in a deal. Maybe you fit into another group they know of, or may learn of in the future.
  • Did you take the time to thank the investors for their time?
  • Did you take the time to really capture their feedback, and did you follow up?

Be sure to explain how your product or service is different than anything else out there, how it creates demand with a market segment, and how you can sell it for more than it costs to produce.


Also on StartupNation.com: The Anatomy of a Pitch Deck


Myth #3: They said they didn’t understand the consumer

If your market base was too large, perhaps you didn’t demonstrate how to reach everyone in it. If the investors didn’t understand it, it meant you were not clear, or have not drilled down to really find your customer.

Can you narrow the market down to the people, in a specific geographic area, that do X, or buy Y? If you can, narrow the market down and show HOW you will go after that market. Can you clearly demonstrate and articulate the different ways you will do outreach in order to stimulate interest in your product?

If you had to pick your perfect, ideal customer, who would it be? With your ability to describe your ideal customer, you have created an avatar for business development, insight to your sales funnel and strategy for your marketing initiatives.

Myth #4: There’s no money out there!

So often we hear that there isn’t any money available, and that is the biggest myth of all. Between angel investors, venture capitalists (VCs), traditional borrowing sources (such as banks), government and university grants, and nontraditional funding sources (like crowdfunding), there are billions of dollars available to fund ideas, startups, non-profits, emerging brands and even successful companies looking to grow.

The real issue with this myth is not that there is not funding, rather people do not know where to look for the funding.

Local and state governments, as well as many academic institutions, have resources such as programs supporting entrepreneurship that are available to apply for.

Learn about funding sources through research or by attending networking events. Read the business trades and contact those who have just received funding; could you ask for an introduction? Apply to incubators, or go to pitch competitions. If you don’t actually participate, listen to the pitches, and learn how the winning pitch was different.

Myth #5:The investors told me to come back for funding later

If the investors did not like you, they would have told you they were not interested. Rather, they gave you an open invitation to stay connected, provide updates, share wins or even go back to them for advice. This gives you a golden ticket to another presentation when the challenges they saw in you and your project are fixed. It is now up to you to execute a plan to overcome the obstacle and follow the roadmap to their checkbook.

Remember, people want to help other people. If investors believe in you and your idea, they want to help you succeed. If you are looking for funding, make sure you don’t fall prey to these myths. If you’ve failed in securing funding, evaluate and learn from your experience. All entrepreneurs have failed at one time or another, and the successful ones learn from their failures!

Ultimately, it is safe to say that the above funding myths have been busted. With millions of dollars being funded daily and billions of dollars being transacted annually, there are plenty of resources available to provide entrepreneurial organizations with the necessities to take off. The question comes down to this: as an entrepreneur, do you understand the process, players and presentations?

Remember, investors are investing in you as much as your product or service. Why are you someone worth investing in?

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