Ah, we finally made it here. After reading our series of blogs on venture capital and raising funds, do you know what’s most important? Avoiding mistakes during your fundraising process. If you are a first-timer raising funding, you probably don’t even know what constitutes a mistake, and if you are not new, a little reminder did not hurt anyone.
Before we begin, remember that raising funds is hard, time-consuming work. Even if you do everything right, the odds of any angel or VC investing in your company are low. But, if you make these unforced errors, the odds quickly drop to zero. You are taking a huge risk as an entrepreneur. Make sure you give yourself the best possible chance of success.
So, in this article, we shall cover the top 5 mistakes that founders make (we have worked with way too many founders – and thus, we speak from experience)
- Not building connections –
This means starting networking as early as possible. Leverage your existing connections and relationships to get introductions to potential investors or to people who can make those introductions. Ask them for advice or information. Most investors love helping founders and will be happy to give a little bit of time and attention. Follow up with them with information on your progress. When the time comes to raise your next round, you will have a whole stable of angels or VCs that know you, know your company, and feel warmly towards you. Remember, investors, invest in people first, and ideas later.
- Too early for fundraising –
Most startups are “too early” because they have not done the necessary validation work to reduce investment risk. Investing in early-stage companies is risky. Before you apply, make sure you have examined all the key assumptions underlying your business model by answering a few questions –
- Do your unit economics work at scale?
- Will customers change their behaviours to adopt your solution?
- Can you acquire customers at a reasonable CAC?
A little tip – Traction is the best way to prove most of these, but if you can’t get that without funding, find other ways of gathering data or running experiments.
- Hiding your weaknesses –
Many startups have weaknesses or secrets not worth sharing. Perhaps past co-founder issues, down rounds, or pivots. Maybe you don’t have strong intellectual property protections, or you built most of your solution using third-party components. You don’t need to shout these drawbacks from the rooftops, but make sure investors do not come across this in their due diligence process. Trust is everything in early-stage investing. Anything that throws doubt on that trust can kill a deal.
- Weak narrative –
You could have the most life-changing product, but if it is not communicated well, investors will never know its importance. Therefore, all aspects of your communications must be clear and on-point. Your enthusiasm and energy need to shine through in every interaction, even in writing. Be visibly excited about your business. Wherever possible, use stories and narratives to convey information. Stories are more powerful than facts. Humans both understand and remember stories far more than data and figures. Leave a lasting impression.
- Not being able to make a commitment –
Investors want to know what you will do with their money and BY WHEN. They want a milestone, a date, and a timeline. You need to show that you will be able to raise that next round at a high valuation because of the accomplishments we are funding.
Our little tip – Clearly articulated commitments and milestones instil confidence in the founders that you have thought through your strategy and understand how to go forward toward your long-term goals.