Don’t make these startup fundraising mistakes…
Succeeding at fundraising, and maximizing your time and resources spent on fundraising depends just as much on knowing what mistakes to avoid as what you should do.
Not Being Prepared For Rejection
Yes, there are rare cases in which entrepreneurs have landed funding from cold emails, Twitter messages, and just showing up. In reality, most startup founders (even those who end up being the most funded and most highly valued) have to face a significant amount of rejection from investors.
You might expect a few no’s, but do you have the determination and grit stay positive and passionate when pitching after 50 investor rejections? What about 100? Some of the most notable founders and CEOs I’ve interviewed on the Dealmakers Podcast have faced 200 and even 300 investor rejections. All to just get their first check.
You need to expect it and be able to handle it. You need to be prepared to thrive through it and embrace it.
Poor Pitch Decks
If you are thinking about how to create a pitch deck, remember that your pitch deck is your key to unlocking funding. You need a network, connections, introductions and good business fundamentals. Yet, it can all be for nothing if your pitch deck lets you down. We’re not even talking about the beauty of your design or product. It has to not only include the right information in the right way, but flow extremely well.
One of the toughest and most valuable things you can do as a founder is to get a second opinion and outside perspective on your pitch deck. Even the best visionaries and geniuses can be victims of being too close to their own work. This is where an experienced fundraising coach can make all the difference.
You may even be far better off allowing someone else to put your pitch deck together. You can always split test your decks too.
Managing Cash In The Bank During Fundraising Campaigns
Chances are that the earliest rounds of fundraising are happening simultaneously with getting the business off the ground and making progress. Depending on your strategy, fundraising can be expensive too.
This should be a period when you are racking up momentum and results in your business. Investors want to see that. Seeing progress during this period can really help bring early contacts around to putting their money when trying to close up a round.
The last thing you want is to go broke and have to layoff key people after you’ve announced a new fundraising campaign. Watch your cash flow. In some cases, it may be better to postpone fundraising until you can afford it.
Staying On Top Of The Real Business
Do not neglect sales, leads, and customers during your fundraising efforts.
Number one, some of those customers may become your best investors if you are serving them really well during this time.
Secondly, investors are going to often want to talk to these customers and see your sales.
If your fundraising fails, and you’ve let your leads go cold and if you’ve neglected your customers, you may have nothing left. In contrast, if you do great at closing sales and customer satisfaction, you may not even need the funding.
Failing To Get Advanced Funding Commitments
Well orchestrated fundraising campaigns already have a substantial part of their ask lined up before they go live.
This may be at least 25% to 30%. Others like to go live with 55% to 60% committed. That creates appeal, urgency, and fear of missing out. The rest of the money will be much easier and faster to close. No one wants to be a part of a failed campaign.
Remember that investors already have plenty of fear. Don’t give them more reasons to be hesitant than you need to.
NDAs & Non-Compete Agreements
Only a few companies have really done well in ‘stealth mode’. In most cases, flying under the radar and being secretive about your startup is your worst enemy. What you really need is as much visibility, sharing, and buzz as possible.
Serious investors view 100 or 200 best pitch decks for every ONE that they invest in. Sometimes more. They don’t have time to waste or the ability to tie themselves down with one. Not even if you’re writing them a nine-figure check.
Being Too Focused On The Money
There are many ways to get money. However you do it, it will cost you something of value too. Get the best return and most value you can. Prioritize who you are raising from, not the amounts and terms and valuations. If you aren’t, that should be a big red flag to potential investors too. Be strategic and land the investors who can be best in experience, connections, and added value.
Asking For Too Much Or Too Little Money
Asking for too much money too early can make you look unrealistic and ignorant of the real business fundamentals at play here. Some genuinely need tens of millions of dollars to make it worth going all in. Most don’t. Remember, you are going to be constantly raising from now through your exit. You don’t need all the money at once.
At the same time, be cautious about asking for too little. Don’t undersell yourself. If a direct competitor who you claim has an inferior product just raised a $9M Seed round, and you are only asking for $2M at an $8M valuation, that may raise some eyebrows. You may not need the money, but it begs the question, why?
There is definitely some selling and hype going on with a lot of fundraising efforts. You want to present the best case, pump up the potential, and create some buzz.
However, you also need to be cautious about overselling it. As a good M&A advisor will share with you, you don’t want to lie or misrepresent. That will just blow upon you. Be careful about how far you get ahead of yourself. You have to be able to back it up. If you can’t you are going to burn investors and customers, and word gets around quick.
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