Venture capitalists reject far more deals than they accept, with just six percent of startups being funded by either an angel investor or a VC, especially when the amount of venture capital investment in the UK has slumped 45 per cent in 2023, according to new data. KPMG’s quarterly Venture Pulse report shows that VC investment sank to its lowest levels since 2016 “amidst a backdrop of geopolitical and macroeconomic challenges” and a dearth of exit activity.
Mark Bower-Easton from Oxford Capital has provided some valuable insights, given the current environment, into the reasons why businesses are further struggling to secure venture capital (VC) funding in 2024, as follows:
Lack of scalability: VC investors are typically looking for businesses with the potential for rapid and substantial growth. If a business model is not scalable, meaning it can’t easily accommodate growth without significant obstacles, it may not be attractive to VCs who are seeking high returns on their investments.
Unproven market demand: VCs prefer to invest in businesses that have demonstrated strong market demand and validation. If a business hasn’t thoroughly researched its target market or lacks evidence of customer interest, it may raise concerns for potential investors.
Weak or inexperienced management team: The leadership team of a startup is crucial to its success. VCs look for teams with a proven track record, relevant skills, and the ability to navigate the challenges of entrepreneurship. Without experienced leadership, securing VC funding can be challenging.
Competitive risks: Startups need to offer a unique value proposition to attract VC investment. If a market is oversaturated or highly competitive, it may be difficult for a new business to differentiate itself and gain traction. VCs are more likely to invest in startups that offer something innovative and have a clear strategy for standing out in the market.
Investor mismatch: It’s important for entrepreneurs to research and approach the right type of VC firm for their business. Different VC firms have varying areas of interest and investment criteria, so targeting investors who align with the startup’s industry and growth stage can increase the likelihood of securing funding.
In summary, securing VC funding requires not only meeting certain criteria but also effectively communicating a clear vision, demonstrating potential for growth, and building trust with investors. By addressing these common pitfalls and aligning with the expectations of business angels and VC’s, businesses can increase their chances of securing investment partnerships.
(Source: LLB / Oxford Capital)