Demystifying Deal Flow: Is your team coachable and ready to take feedback?
February 23, 2023
What can startups learn from applying for seed funding? In this article we continue discovering the learnings from our last article “5 tips for getting an angel investor onboard”, where we shared the lessons from the last batch of startups that applied for seed and pre-seed funding through the Finnish Business Angels Network.
These findings are based on our previous screening session, where FiBAN evaluated 84 startup applications. On average, 9 angel investors take part in evaluating dozens of startup applications on each screening board.
The screening board members base their decisions typically on long industry experience as entrepreneurs and/or angel investors as well as their personal interests.
But what were the core reasons why this time startup funding applications were rejected? Let’s find out.
As many as 79% of startups neglected their go-to-market strategy
Compared to the previous batch, even a larger share of startups forgot to think about their Go-to-market strategy after the Christmas break. The number of startups neglecting this grew from 60% to as high as 79%. Luckily, it is not all downhill as there was an improvement with other evaluation criteria, such as startup teams.
79% had an unclear go-to-market strategy
This still remains the most common reason why startups get rejected by angel investors! A startup’s growth engine should be defined whether it’s sales-led, product-led, or other. It should also include how a startup is planning to take over the chosen market.
60% has too high a valuation compared to the stage of the company
Valuation being too high together with capital seeking makes the angel investors wonder if this is investable. A valuation too high also means higher expectations for traction from investors. There will be negotiations about the valuation during investment conversations, but it still should be in the correct range to make it this far.
58% of startups had their competitor analysis unclear or unrealistic
Competitor analysis should always be included but it should also be credible. There is always some type of competition for every startup!
50% had their competitive advantage unclear
The application should make it clear what gives the startup a unique advantage over those trying to compete with a similar solution. Try to think of your competitive advantage from the buyer’s perspective: why would they choose your product over the competition?
48% had estimated their market size unclearly
It is important to evaluate the potential of the market and it should be concise about the specific market you are targeting, not the whole market in the world. Let’s say that very rarely a startup can directly jump from early revenue to worldwide scaling. You need to explain what happens in between before you get there.
In order to get started in this you can use TOM (Total Addressable Market), SAM (Serviceable Addressable Market), and SOM (Serviceable Obtainable Market) together with future growth estimates for the markets.
The positive side: great teams that improve through feedback
On a positive note, there were also pleasant findings in this new batch. The accepted teams who got through screenings all the way to FiBAN’s Pitch Finland had good coachable teams that have what it takes to grow their companies. They also stood out by constantly improving their deck and application, and with their ability to take feedback.
Even when it hurts, learning to take feedback is important and it’s an inevitable part of entrepreneurship, as feedback eventually either comes from customers, the board, or investors.
If you’re unsure what your pitch deck or application should include, the FiBAN team has just compiled this free startup checklist for applying for angel funding.
Join a screening session?
FiBAN Member – would you like to join the FiBAN Investor Screening Board? Register for the next screening board here.
Deal Flow Manager