5 Mistakes to Avoid When Seeking Funding for Your Startup

You have your product, you’ve tested it with your target market, and maybe you even have a customer...what’s next? The next bridge you may need to cross is the good ol’ capital raise. Every startup has its own unique needs, and funding goals, but raising money isn’t as easy as walking up to a VC and asking for a blank check. If you plan on raising funding for your startup, you should also plan on avoiding some common mistakes that entrepreneurs make when seeking funding.

 

 

1. Making the ask before you’re ready

Every early stage startup wants to raise money, but not all startups are ready for it. Getting in front of a potential investor before your pitch deck is polished is a sure-fire way to not make it to the second meeting.

 

2. Throwing a business plan together

Yes, it’s true that during the early stages of a startup, your business plan will go through the ringer several times - with alterations and adjustments made along the way. However, nothing wastes an investor’s time quite like having them sit down to hear about a business plan that was just thought through the day of. Having your business plan together doesn’t mean having a twelve-page report of approximate financial projections for the next five years. What it does mean, though, is knowing enough about your target customer, product, business model, and go-to-market strategy to prove that your venture has real potential. Investors’ time is valuable. If you are lucky enough to make it to a meeting with a VC, nothing makes a worse first impression than wasting their time.

 

3. Talking the talk without walking the walk

Another - and possibly worse - way to waste any investor's time, is to convince them that you are further along than you are. VCs are looking for promising entrepreneurs who can prove that they have what it takes to launch and grow their startup - they aren’t looking for startups who spend all of their time talking about the great things they are going to do in the future, without showing proof. The best way to prove this is to show validated traction of some sort.  Whether this is that you’ve tested your product with your market, or...even better, already have paying customers (the freaking holy grail!).

 

4. Not knowing how much money you need

When investors say that they want to see the numbers, they aren’t talking about the billion dollars that you hope to make – they expect to see the actual numbers  – the thought-out, crunched-down numbers. VCs and angel investors have money to spend, or else they wouldn’t be there, but their money is as valuable as their time. Not knowing how much money you need tells investors that you don’t know enough about your company. If you don’t know how much money you need and specifically HOW you are going to use it, you may ask for too little money and fail early, or ask for too much money, and spend it on the wrong things. So, yes, when you ask for money you should know how much you actually need...who would’ve thought!

 

5. Asking the wrong people

With every new startup stepping up to bat, there is a new VC or angel investor in the stands. When you’re trying to figure out how you’re going to afford rent next month - above all other expenses your startup is about to incur - it’s easy to feel as though any money is good money, but making this mistake comes with a long term tradeoff that any committed startup can’t afford. Short term earnings may mean long term losses if your equity-owning investors are not a good fit for your team on a personal and business level. Investors don’t just give you their money in hope that you succeed, most investors give you their money in return for equity in your company and the relationship does not just end there. They want your startup to be as successful as possible and the higher the stake they have in the outcome, the higher involvement they’ll want to have in the decision making. Taking an investor’s money means taking them on as an owner in your company. Choosing the right investors in your company is just as important as choosing the right team, since, well...they ARE your team!