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As we meet with dozens of startups on a weekly basis, we have seen a pattern of mistakes entrepreneurs tend to make when fundraising. We would like to share some of the experiences we have had with hundreds of entrepreneurs, so you can avoid them.
Mistake #1: Thinking an amazing pitch deck will get them there
Many startups have come to us with amazing looking pitch decks, but simply could not master their business. After failing to get funded, they would ask us ”Is there anything wrong with my pitch deck?“. A pitch deck is just a tool to trigger investors; it is a translation of your project. If the idea and execution are not great, then no incredible pitch deck can get you to investors.
Mistake #2: Having a mindset that angels are willing to invest in ideas only
Some startups come to us with a great idea and a structured 3 to 5-year plan. Ideas are great but investors prefer execution. Building, at the very least, an MVP is proof that you are committed to your project. Everyone can develop ideas, but only a few are able to execute effectively.
Mistake #3: A lot of “I will” and less of “I have done”
Commitment is something we value from a startup. A startup can have a full set of competent team members ‘but if they do not have the commitment, it will bring them nowhere. As investors are buying the future of the company, they need to sense that the team has their ‘skin in the game’ in the business as much as they do. Good startups always focus on what their progress has been to date. They tend to talk in past rather than future tense.
Mistake #4: Displaying a snobbish attitude
Some say that you have to be confident in meeting investors but this cannot be mistaken for a ‘know-it-all’ attitude, as the latter will raise red flags about the startup amongst investors. Always act with humility because regardless of how good the tractions the startup has achieved are, one of the objectives of meeting the investor is to prove that the startup team is easy to work with, and that the members are always willing and ready to learn.
Mistake #5: Not having your business legal corporation ready
Having a legal entity for your business is a choice but in order to have an investor funding your company, you’ll need one for sure. You’ll want to have your company and documents ready to have a smooth fundraising journey because the funding itself will take a bit of time to process. Besides, having a legal entity (LLC) will give you more options for the funding instruments and clearer legal terms.
Mistake #6: Setting your valuation as high as possible
Valuation is not just a number but it should reflect the current state and the future potential of the company. We’ve seen many startups shooting too high and trying to raise absurd amounts of money for their first fundraising (talking about seven digits) thus having trouble finding the money. Investors are looking for real businesses instead of favorable but unrealistic numbers.
Mistake #7: Not doing homework to research about your investors
Not knowing who your potential investors are causes more harm than good. Some startups are blinded by their interest to get funding and they channel their application to all possible investors. At the end of the day, they get investors who do not satisfy their needs. We believe that money is a commodity. Find investors who can bring value to your company in a non-monetary way; for example, a network, business assets, and mentorship.
Mistake #8: Clueless about their own financials
Although they might not be the CFO, all startup founders need to know the company’s numbers. Mastering the basics of reports and projections is crucial because the success of your business is reflected through those numbers. Some startups fail to take off because they are unable to keep track of their cash flows, do proper financial calculations, or even work on their monetization plan.
Mistake #9: Thinking that the startup can’t move forward unless it gets money
We found that a lot of the companies have come to us with the wrong mentality. They believe that the business can only begin when investors’ money comes in. Wrong perception, everyone! The key to a startup is to start small and fail fast. It’s totally possible to test the water with minimum budget. Start with your own inner circles first. They are more willing to give sincere opinions and try your product.
Mistake #10: Makes fundraising priority and end goal
Some entrepreneurs make fundraising an end goal. Thus, they focus much on polishing their pitch deck, attending events, and meeting investors. This misleads them from what should be their main priority, developing the product. Our best piece of advice to all startup founders is “keep building your business and investors will come to you”.