A common reason that investors reject startups is that they lack traction or growth. This is often very frustrating because you soon end up with the chicken and egg story. Without growth, no money. But without money, no growth. For a company in the early stages could mean downward spiral. Yet there are ways to get funding in the initial phase:
Focus on the TAM
Entrepreneurs raising capital without traction, need to tell a story that illustrates how their total addressable market (TAM) is so attractive and ripe for disruption that future consumer adoption will be readily achieved. In short, we can define TAM as the total revenue opportunity that is available to your company and/or product in the market today. This is often an important factor for investors to see if he potential to create a highly scalable business exists.
Yet another tactic is for founders to focus on storytelling tactics to make their startup even more attractive. This can be particularly fruitful since humans are predisposed to focus on the power and possibilities of great stories. This is good news for early-stage startups without traction since story is usually the only thing left to focus on. By focusing on the origins and eventual destination of their startup, founders can actually make their business more attractive than if they had achieved traction. Since investors’ imaginations about the potential for growth can sometimes seem limitless. So provide a strong story and put your target group at the center.
One of the most important tools in the entrepreneurial “pitch arsenal,” if you will, is the ability to draw analogies between yours and previously successful businesses. Therefore if you do not have the metrics to raise at such an early stage, analogy is a useful tool to illustrate similar market conditions, customer dynamics and the potential for growth that other companies have already demonstrated. Still, you must be careful when employing analogies.
These tactics can work to raise funding, but they will never give you guarantees. Keep focusing on building your business and attracting new customers.
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