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Price Water House Coopers and the National Venture Capital Association released a study last Friday that showed funding for business startups declined substantially in 2012. This is a new trend — venture capitalists are investing in fewer companies and each one that does receive funding is getting less. The sectors most affected by the downturn are life sciences and clean technology because investors just aren’t willing to intensively invest that kind of capital in this economy.

Despite the 23 percent reduction in capital outlay in 2012, there are things you can do to get funding in 2013. But first, let’s look at what not to do. Many entrepreneurs make these common mistakes:

  • Good Idea, Bad Timing – Timing and economic cycles are a major factor in whether your startup receives initial funding and ongoing funding. Don’t completely throw away an idea too early if it does not get picked up. Get to know the state of the venture capital industry. It may just be a matter of tweaking the focus a bit and trying again in 6-18 months.
  • Not Understanding Term Sheets – Venture capitalists looking to make an investment will produce a term sheet, which looks quite official, but in itself, is not a binding document. If the investor hasn’t done their homework (due diligence) before presenting the term sheet, they may get cold feet after doing so. If you’ve been banking on this one opportunity because of what a term sheet said, you can get surprised.
  • Not Matching Product Rollout to Fund Cycles – The investing cycle for most funds is three to five years. Is your product or service ready to meet the challenge of quick turnaround and going all out? Is it ready to produce enough of its own capital after that timeframe to survive? Five years may seem like a long time, but those who have been through the cycle can tell you it goes by fast!

Here are a few things you should do to be successful at securing venture capital funding:

  • Connect With the Mission of the Funding Source – Are you going after educational and research funding, private technology investors, or government agency funding? Each type of funding source will have a different approach. Don’t submit the same proposal to different funding sources without customizing it to the organization’s mission.
  • Connect with Individuals – Yes, it’s still all about who you know, not just what you know. Get to know key contacts at funding organizations and stay in contact whether your proposal receives funding or not. It’s a tight-knit community and you will benefit from getting connected
  • Ask for Help – Don’t let pride get in the way of finding a mentor and asking for help. Someone who has been rejected before and then ultimately funded will have a wealth of knowledge you can use.

Our photo-based social media fashion startup, Modera, did secure 500,000 in funding in 2012. And Modera is poised for some explosive growth in 2013 and beyond. We’re excited to meet with investors in Sacramento, San Francisco and the Silicon Valley and share the fashion competition concept and what Modera has accomplished since the launch. The original investor is poised to commit $7 million once Series A funding of $3 million is secured.

Having a solid concept and a hard-working team is a good start. Connecting with the right people, understanding their mission, and timing the idea just right can help attract the right investors, even in a tough economy.

2013 is going to be Modera’s time to shine….what about you?