My Startup Just Can’t Get Funding, What’s My Plan B
What founders can do if they can’t secure venture capital.
What founders can do if they can’t secure venture capital.
The reality is, the vast majority of startups don’t get funded, so don’t feel bad.
According to Fundable.com, 565,000 startups are launched each month in the US. These startups raised more than $531 billion per year but only 4.1% of the funding is from venture capital (VC) and 3.8% from angels. The rest got their money from savings, friends & family, bank loans or crowdfunding.
Even if you got funded by a VC, your odds of failure is still higher than success. According to CB Insights, 48% of startups fail to secure funding beyond the seed round and 67% eventually stall at some point and fail to exit or raise follow-on funding.
Here are some practical tips from personal experience on what your Plan B can look like.
Make it a real business
There was a time when silicon valley founders talked about their ‘burn rates’ proudly. (How much money their startup burns through each month)
But if you’ve ran out of money to burn, try to turn your startup cash flow positive instead. Grow it the old fashion way. Generate revenue and try to make a profit.
Many startups are tech based which means they have products and skills they can sell to companies looking to outsource or buy off the shelf.
Furthermore, having a revenue stream or products deployed at scale instead of just ideas without traction also increases your chances of finding a trade investor or buyer.
Find a trade investor/buyer
Serious money don’t always have to come from institutional investors. Many big corporations have their own venture funds. Even large local companies (LLCs) or small and medium size companies (SMEs) will invest in startups if there is a strategic fit.
I recently reconnected with a founder I haven’t met for four years. The last time we talked he was looking desperately for VC funding after two years of bootstrapping. Today he has pivoted his business model a few times and is still pushing on. Backing him is a local company that saw synergy in the technology he developed for their own logistics business.
Another Taiwan startup I know recently merged with an advertising company after struggling for five years and pivoting several times. Their latest core product, a live streaming ad plugin, attracted the merger. They struggled without the manpower or expertise to sell their product, whereas their acquirer already had those and a client pool to sell into.
How you can find and convince a business owner that otherwise wouldn’t be thinking about investing in startups is a matter of your networking tenacity, and the ability to pitch from the right angle. But it can be done.
Sell out as a team
Bump was a novel idea that attracted 60 million users. But the company struggled to build a real business out of it after burning through $20 million. So Google acquired it for its innovations and patents.
Google was buying the team and its intellectual property, not the product or company itself.
I have consulted twice for startups who had corporate investors that were essentially taking a bet on the team because of their caliber. How did I know? I asked the investors; they told me so.
Let someone else take over
Some founders are great inventors or product creators. That doesn’t always make them great businessmen as well. They might be better off licensing their technology or letting someone else take the reins to commercialize their ideas.
A good example is Razer, a gaming startup now listed on the Hong Kong stock exchange and worth more than $1.2 billion.
Tan was initially hired by the original startup to explore how a product could be made from a optical tracking technology licensed from someone else. After the startup failed, Tan eventually got together with a member of the original team to create an improved version of the product. Together they bought over the brand name from the failed company and the rest is history.
Sell your IP or brand
Even if you have to shut down completely, there are still ways to make the most of your liquidation value.
My first startup was pretty much a failure after three years of struggling. Being young and inexperienced, I completely underestimated market structure differences in other countries and shipping costs.
After several pivots and still no success, I was so exhausted I just wanted not to have a single email in my inbox when I wake up.
I got myself some long vacation money by selling the intellectual property and branding of my startup. I had accumulated a sizeable database of e-books and created some visibility in the company name and e-commerce portal. An industry figurehead decided to acquire both after I pitched it to him twice.
And if you must go, go gracefully.
Something good can still come out of your failure. And a startup has been created to facilitate that!
It’s call Startup Graveyard.
It’s a website where users can submit details of their startups and why they think it failed. An ‘autopsy’ will be performed and a ‘tombstone page’ established for each failed startup. Visitors can read the analysis and leave comments. The idea is to create value from failure through sharing.
“ The mean founder age for the 1 in 1,000 highest growth new ventures is 45…Founders in their early 20s have the lowest likelihood of successful exit or creating a 1 in 1,000 top growth firm.”
— “Age and High Growth Entrepreneurship”, MIT
Statistically speaking, older start-up founders have a much higher chance of success. Research from MIT proves this.
Personally I’ve met a guy who tried doing startups five times. On his fifth attempt his company was finally a success and was listed on NASDAQ. He was 50 years old then and finally attained his dream of retiring and playing golf.
Getting funded by a VC isn’t the only path for a startup. Neither is failure to attract external investors a reason to say your business couldn’t work. A business is ultimately about making money, not spending (someone else’s) money.
If you are a true entrepreneur, learn from your mistakes and try again.,