Startups have a failure rate of 92%. Tara Kinney, CEO of Atomic Revenue, a firm that counsels startups on how to generate revenue, says that many St. Louis startups lack the financial sophistication to help their companies become part of the 8% of successes.
“Compared to other startup communities I’ve worked in, startups in St. Louis have difficulty tying management decisions to financials,” says Kinney. “This contributes to slow revenue growth and a low number of exits within the St. Louis startup community. As a result, investors aren’t getting a return on their investment, and while they wait for return of capital from initial investments, they are reluctant or unable to invest in other promising startups within the growing ecosystem.”
The Brown Smith Wallace Startup team recently sat down with Tara Kinney, CEO of Atomic Revenue, to discuss the startup ecosystem and the financial constraints facing local startups. Too often, says Kinney, startups don’t focus on the one aspect of their business that will make it easier for them to raise funds—generating revenue. Here are three areas where startups can get tripped up:
1. Being afraid, or unwilling, to give up equity for capital.
“Owning a smaller piece of something big and successful is better than owning 100% of something that’s not successful,” says Kinney. “Founders need to do what’s in the best interest of their venture so it can grow and generate revenue.”
2. Seeking outside investment before your startup is ready.
Bootstrapping your startup until you’re ready to ask for significant investment isn’t a bad idea, says Kinney. “When you’re ready to go to investors, make sure you ask for enough money. If you don’t ask for enough, you run the risk of not being taken seriously. Asking for ‘change’ gives the perception you aren’t running a ‘real’ business.”
Bryan Graiff, Partner in Charge, Transaction Advisory and Litigation Support Services at Brown Smith Wallace, concurs. “It’s critical to have a sound business plan with financial projections that the assumptions and growth rates have been vetted by a respected transaction advisor.”
3. Not having a plan for spending investment dollars.
“It’s critical that startups have a plan to spend their money on the right things to minimize burn rate and increase revenue potential,” says Kinney. Cathy Goldsticker, Tax Partner and Startup Industry Group Practice Leader, agrees that this is sound advice for startups. “Any funds a company has left over at the end of the year may create a tax liability. Sitting on a surplus of cash at the end of the year can be avoided if the startup has a plan in place to strategically spend and invest those funds throughout the year.”
To develop a strategy to raise funds and generate revenue for your startup, contact:
Cathy Goldsticker, Tax Partner and Startup Industry Group Practice Leader, at 314.983.1274 or email@example.com
Bryan Graiff, Partner in Charge, Transaction Advisory and Litigation Support Services, at 314.983.1390 or firstname.lastname@example.org