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Starting: Why Most Entrepreneurs Fail to Raise Money

So you have a great new company. And you’ve created a killer business plan. So, shouldn’t the next step be easy – getting investors to line up to fund you?

Unfortunately, raising money is not quite that easy, and as a result, the vast majority of entrepreneurs fail when trying to raise it.

The top reason for this failure is that entrepreneurs go after the wrong money sources. And the biggest culprit in this regard is venture capital.

Venture capital is not right for most entrepreneurs. For starters, unless you have the ability to grow to $50 million in sales within three to five years, then venture capital is not right for you. This criterion alone is why venture capital is nearly exclusively limited to technology companies.

While other types of ventures, like service businesses, retail business, and consumer products could become wildly successful, and make their investors lots of money, they generally don’t scale as quickly as technology ventures.

So, if you don’t qualify for venture capital, what can you do? The good news is that less than 1% of ventures who raise money do so from venture capitalists. There are over 40 other sources of funding to go after.

There are angel investors, bank loans, Crowdfunding, vendor financing, customer financing, grants, and so on. The key in most cases is to get creative.

One of my favorite stories in this regard is that of Kenneth Cole. When Cole launched his shoe business neither banks nor angels nor venture capitalists would fund him.

So, Cole convinced a struggling Italian shoe manufacturer, knowing that they needed clients, to manufacture thousands of dollars of shoes for future payment. Cole succeeded in financing his business this way and now owns a massive empire.

Dave LavinskyCo-founder,
Dave is an internationally renowned expert in the fields of business planning, capital raising, and new venture development. Over the past decade, he has guest lectured at top universities, developed over 100 business plans and written hundreds of articles on entrepreneurship. | @davelavinsky | More from Dave

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