5 ways to get startup funding for your digital agency

If you are an avid follower of the startup news, you might have noticed that most of the startup funding is landing in the tech startup space, that too largely in the mobile apps & e-commerce category. Have you ever wondered why the startup advertising agencies are not in the investment radar.

Why is it that the most innovative or profitable ones (agencies) get acquired, while the rest struggle to make their mark for a very long time?

If you are an owner of a digital agency startup, here are few things you must build in your business plan in order to secure startup funding for your business:

1. Productize your offering

There is a general assumption that agencies are service based companies (which is not incorrect) and their revenue model is fragile. The competition is so intense that you have keep searching for leads all the time. Payment cycles are long and ‘client loyalty’ is limited due to which advertising agency is considered (or perceived) as low cashflow business.

In order to change this perception, you need create a unique product of your service which has a tangible aspect to it. One way you can do it through technology i.e. by building custom proprietary solutions targeting a specific need (like lead generation, customer engagement, user behavior, customer satisfaction) in a particular industry.

Once you do the above, it would lend measurability to your business model. You can actually predict a certain revenue based on the target audience you have made that solution for.

2. How to showcase your solution to an investor?

Every investor wants to see a practical and profitable business application of your service/product. Do your research on different brands across industries, make an attempt to understand their brands and business challenges. In the agency world, this is called working back to the creative brief. Figure out why your solution or service best-suited to help a particular client.

Show examples & case studies to your investor as to how you transformed it for a particular client.

3. Demonstrate Measurement and Support Capabilities

Make sure you have a sophisticated measurement and accountability system embedded into your technology. Analytics are essential components of the agency business, so be sure to address the topic in your presentation. Also mention your team, however small, in your pitch. Even though you may be a small startup, you have to reassure that you and your team will be able to see any project through to the end.

4. Scalability is critical

One of the key criteria of evaluating any business model is to see how quickly it can scale in time. Every agency is currently dealing with this issue of scalability, especially because they have not embraced the technology to the fullest. Most of the processes (especially around Project management, client relationship, resource management), can be automated through various digital tools available on the cloud. These technologies allow you to get more done with limited number of resources at 1/10th of the operating cost.

Once you have a strong business case, the investor would be interested in knowing how you would scale up the revenue & systems to handle hundreds & thousands of clients? That’s why your investor pitch needs to have scalability in its DNA.

5. Demonstrate multiple business opportunities and revenue models

The investor is also interested to see the vision behind your business. Are you thinking ahead of your time and your competitors? Do you have the team who can produce cutting edge solutions based on past, present & upcoming platforms?

A single business model can never succeed and is too risky to put investor’s money. Having said that you must showcase your plan of action around every revenue model that your company would touch in the next 5 years.

What are places where you are trying to generate first mover advantage for yourself? How will you accelerate existing revenue models? What are the new audience segments you would try to penetrate where existing market hasn’t ventured out?

6. Brand your startup agency

There is no doubt that digital is the hottest proposition at the moment. Every company is re-looking at their business models to match the growing requirements of the digital world. In this case, it is absolutely vital for a digital startup agency to build their startup philosophy in order to create a differential.

A smart investor would definitely like to see how good is the social media of the company who claims to bring the next big disruption in the space. Is your website behaving like a notice board (bored) or your achievements or if it is designed to share valuable insights & trigger conversations?

Also read: 25 ways to Brand your startup

Beware! Do not consider creating a fancy parallax website as thought leadership. Disruptive strategy does not require show off. Sometimes, it is doing all the right things in a clinical manner that makes a huge impact.

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RIP Reports – Worldwide Failed startup trends

Let me start this post by making a simple statement. By the time I would finish writing this post, according to latest startup trends, around 11,000 new startup business would get added to this world. Must be wondering how I found that number?

According to a massive research startup study done by Global Entrepreneurship Monitor– around 472 million entrepreneurs worldwide attempting to start 305 million companies, approximately 100 million new businesses (or one third) will open each year around the world.

reynoldsInterestingly, Dr. Paul D. Reynolds, Director, Research Institute, Global Entrepreneurship Center also says,

” The developing countries of Asia and Latin America are far ahead of Europe in starting new businesses, according to a recent survey of global entrepreneurial activity. But few start-ups have the potential to make an impact on jobs and growth, and a negligible number benefit from venture capital, with the vast majority reliant on informal funding. The 2002 annual survey by the Global Entrepreneurship Monitor (GEM) was carried out across 37 countries representing 92% of world GDP. It finds that 286 million people, 12% of the workforce in these countries, are engaged in starting or running a new business, implying a global figure of about 460 million. “We were quite shocked by how high the index is in the developing countries,” admits Paul Reynolds, the GEM project co-ordinator. “Only now do we have a fuller understanding that half of the people in many developing countries are doing it out of necessity because they cannot find work, and that is what drives the rate up so high.” 

Every now and then we keep seeing these lists on buzzfeed or twitter around “17 coolest startups that can change your life” (like this one) and I’m sure a lot of you feel wow about the whole concept of startups. But let me spoil your party, most of these startup companies typically die around ~20 months after their last financing round and after having raised $1.3 million.

Failed startup Companies By Sectorfinal

  • 55% of failed startups raised $1M or less, and almost 70% companies died having raised less than $5M overall.  Not a big surprise. Companies at the earliest stages are the most vulnerable due to limited financial runway, immature products and businesses and general uncertainty about whether the market needs what they’ve built.
  • In each year since 2010, 70% of all dead tech companies have been in the internet sector. This is hardly a surprise as within tech, a majority of funding and deals has gone to the internet sector and so it would follow that the sector would have the largest proportion of dead companies.  The % of companies dying within the internet sector has stayed relatively range bound over the last several years as well.

On his many failed experiments, Thomas Edison once said,

I have learned fifty thousand ways it cannot be done and therefore I am fifty thousand times nearer the final successful experiment.

Well, it seems a lot of our modern day entrepreneurs have taken that quote to their hearts.

The rate at which startups are failing is quite incredible. Media, quite literally has made the whole idea of startup funeral extremely cool. It is hilarious (even bizarre) that the failed entrepreneur wants to grab the same attention like a war hero. The irony however, is that the media (especially the social media) is happily obliging to do it. Public post mortem of a failed Startup seems to have become a general startup trends in the business circles. A lot of professionals find it intellectually stimulating to visit the #RIP sessions of the startups. 

Dead_startup_Funding_Raised

 

Dead_startups_Time_Since_Funding

According to CB Insights report:

  • While the dead companies on our list raised $11.3M on average, the median funding raised which is a better measure in this case was $1.3M.
  • the average company dies ~20 months from its last funding round in the absence of additional funding or acquirers.

But the question which is bugging me continuously is,

Why do so many startups fail? 

Typically, there could be hundreds of possible reasons for a failed startup like:

  • lack of strong value proposition
  • high risk low return business model
  • longer sales cycles
  • non scalable, non profitable business

and many, many more. You could actually read about reasons of startup failure all around the web.

startups_failed_industry_Rankings

 

According to CB Insights startup trends,

“Death is not specific to a particular type of sector or industry. In fact, the companies on our dataset represent a fairly diverse set of subindustries.”

Interestingly, in the following Ted Talk, Clara Brenner, Co-Founder of Tumml talked about why a lot of social startups face such high failure rates.

She has mentioned about the importance of seed funding & how it needs to be utilized in a startup.

Also, the relevance of Impact Investors to Urban Innovation startups can be co-related with the importance of finding the right investor that matches your company’s vision. 

Finding a right investor for a startup is nothing short of doing matrimony match making. A lot of the startups fail even after getting several rounds of seed funding because the investor does not show enough trust or faith in the founding team’s vision.