Is There Funding For New Ideas and Companies?
As a business consultant, I see more entrepreneurs not able to obtain funding than I see entrepreneurs obtaining the necessary money to see their ideas transformed into a viable business. This difference is very large. It maybe one idea is funded for every 10 that go unfunded but it may be as high as 1 is funded with 100 never obtaining a nickel. This kind of difference and the struggles of the entrepreneur who is frustrated by not ever seeing his idea transformed into reality and making him rich, prompts the question; is there enough funding for new ideas and companies? How one market’s the idea can sometimes be more important than the idea when it comes to obtaining venture capital.
The entrepreneur would quickly and resoundingly answer the question with a “no”! Many entrepreneurs have a hard time or are unsuccessful in getting money. Their idea is not the problem; it is that there is not enough funding available. The reality is that making additional money available to this group of entrepreneurs who have been unable to secure funding, will not create more companies and in turn more jobs. How can this be?
These ideas, that are not funded, whether for a service or a product, are really not “better mouse traps” or the entrepreneur is seen by potential investors as unable to successfully implement or allow the things required to be delegated to achieve a successful venture.
Most people do not appreciate how hard it is to provide a service or make a product, inform their target market about the product, get the product or service to the person who wants to use or buy this service or product and finally make a reasonable profit while doing and paying for all the previous mentioned tasks. Some entrepreneurs fail to factor in what capacity and talent would be needed to accomplish the launch of their idea.
Entrepreneurs become passionate about their idea, as they should, but they also need to be realistic. Just because you can produce a fuel for the combustion engine that is made from a renewable source, and will not cause pollution why would people pay $10 a gallon for it when they can get a petroleum based fuel for under $3 a gallon?
Would you invest your money into a company the produces a product that the consumer is willing only to pay $15 for and it costs the company $30 to make?
What about the entrepreneur who has a unique product everyone wants but the entrepreneur does not know how to delegate? He is brilliant and can do everything better than anyone else. No one else can do a task well enough to satisfy this entrepreneur! This entrepreneur needs to make the sales call, make the product, ship the product, and do all the administrative tasks. The company can make, sell, invoice or collect enough to make the company viable. This is an example of a great idea headed nowhere.
The entrepreneur’s answer to what was discussed above is that this is can’t be the case with his idea. The statistics say otherwise. Of those ideas that get funded, only one in ten produce a profit. Would you invest your money in a company that you have only a 10% chance of getting back your original investment, let alone a profit?
If you invested into this company you would want to understand what it does, why it is unique, why people would use the service or buy the product, who is the competitors or potential competitors. What is the potential share of market? Some entrepreneurs have their company growing by 20% every year forever. A company can not grow by 20% forever. There comes a time when the market is saturated and all the need is full filled. How, when and how much money will I receive from my investment into the company. Unless an entrepreneur can answer these questions and more like them, the entrepreneur will not receive the funding they desire. By the way, most entrepreneurs I have met can not answer these questions. Nor do they understand the need for a proforma and market analysis.
There is, in my opinion, currently enough funding for new products and services, whether this funding is from private investors or through the government. What there is, is a lack of is well thought out and well presented ideas to access these funding sources. For more entrepreneurs to be successful, they should get help in thinking through their idea, do an objective market analysis, write a great business plan, present the plan and hire the talent necessary to implement the business plan. With great planning, thoughtfulness, and completeness ideas will get funding. This will create many more successful companies which will produce more profits, which then can be used to fund more ideas.