Digital startups are cool, exciting, and creative. But many may not know that the majority of these fun businesses go under. Sometimes, it’s because there is no chief data officer.
The number of startups increased significantly in many countries during the pandemic. The number of failures will also multiply in turn. For example, in the United States, the number of business startups grew 24% to 4.4 million from 2019 to 2020, according to an article in CDO Trends. Entrepreneurs stayed home with lots of time on their hands. They put their minds to that genius idea they’d been thinking of developing for years. However, according to CBInsights, around 70% of startup tech companies fail, usually around 20 months after first raising financing.
Your Pitch is Critical
Dedication and a fabulous idea aren’t the two only components that go into a successful startup: a big determinant of success or failure is in the pitch. The odds are stacked against the startup here as well, and research shows that 95% of investor pitch decks will fail to drive the startup through to the next round.
The reason is that many pitches are just too long and don’t define their target market sufficiently. A good pitch decks hit on the differentiation of the idea, which is crucial. If an investor is sitting through dozens of investment pitches, the successful ones must contain something different to stand out. This is where a chief data officer would be helpful.
Further, many entrepreneurs create presentations based on the fact that they’ll be speaking to investors in person: as if the pitch deck is an adjunct to their in-person pitch. However, the reality is that many people will be reviewing the presentation as a standalone document. As a result, the pitch material must be easy to read and understand without the benefit of the creator’s explanation.
Chief Data Officer Challenges
Note that after only 12 slides of a presentation, a potential backer will already have made up their mind. With that said, there are three main challenges:
Tech CEOs raising seed financing have lots of meetings with angel syndicates that go nowhere because they don’t understand the role of champions and influencers;
Tech CEOs are rarely permitted to present to investor groups because they don’t understand the prescreen process and gatekeeper role; and
Seed investors find it hard to trust and invest in tech CEOs they don’t know.
How Does an Entrepreneur Overcome These Challenges?
Here are some ways to address these challenges:
Bypass gatekeeper prescreening and get invited to present the investment opportunity by identifying the investor group prescreening criteria; then you can deliver a high-quality, professional pitch coordinated by a chief data officer;
Build credibility within the investor group by identifying a champion for each investment group; and
Get warm introductions to investor groups by using your network of professionals, such as attorneys, accountants, advisors, bankers, CEOs, and entrepreneurs to make a personal connection with the investors.
You can see that these ideas point to the value of old-fashioned networking and the benefits of having historical connections with those who have confidence not just in the idea but in who’s pitching it.
Why Startups Fail To Get Funding
Here’s some data on why startups fail to get funding once they progress to the next stage. From a survey of angel investors, the top reason is that the product or business model doesn’t quite make the cut. The data doesn’t support the idea, perhaps because there is no chief data officer. This was the reason given by 39% of respondents. In addition, 37% said it was because of the nature of the market, and that it was either too crowded for the idea to gain traction or was too small to justify the investment.
Two additional reasons included financials (with 14% of angel investors citing over-enthusiastic valuations), and 10% of investors reported they didn’t fund because the pitching team was inexperienced or incomplete in its combination of skills.
Chief Data Officer Should Have Your Idea Audited
A smart way to get noticed is to have an analyst create a report on a startup. This costed about $40,000, and because of this, a lot of startups don’t do this. However, for some, this is the seed capital they might be seeking and without this type of exposure, the alternative can mean oblivion. Startups frequently balk at the price tag of an analyst’s report; however, paying for a report demonstrates a significant level of commitment and can sometimes make up for a thin network and a lack of connections.
This is worth pondering for entrepreneurs whose pandemic-created ideas are now maturing and who are preparing to pitch to angel investors and venture capitalists.