So you think you’re a hot-shot entrepreneur who’s come up with a unique idea. Well, hate to tell you this but: you are not the only one. Every year, every day thousands, if not millions of entrepreneurs come up with business ideas. Some brilliant and other not so much. If you are one of them, you will soon realise that you need funding for scaling your startup venture; and thus the need to look for investors. Startup companies need to purchase equipment, hire staff, and rent office. Most importantly, they need to grow and all these require capital. The initial capital raised by a company is typically called a “seed fund.” However, only a few out of a hundred ventures will catch the eyes of investors. This means that about 97% of startups looking for investors will get rejected. In most cases, it’s not about a weak business idea, poor product or services. It is because the process of securing funds is not as straightforward as it may seem.
Startup fundraising is like chess. Every piece counts, every move you make will have consequences, either great or bad. One small misstep than bam! You’ve been swept under the rug and forgotten just like that. Such is the life of fundraising… One mistake and your chances are gone. Currently, there are plenty of articles on what startups should do once they are funded. But there’s not nearly enough on actionable advice on how to avoid on becoming part of the 97% who fail in securing funds. Thus, it literally pays to avoid potential mistakes during fundraising. So here are some few key tips on what to do and what not to do.
What not to do when meeting Investors.
If you fail to understand how investors work, you are bound to make very very expensive mistakes in your startup fundraising efforts. Many startups will approach investors with no consideration of what stages of the life cycle the investors are at. To put it bluntly, it is a waste of time for startups to approach investors who are in the third and fourth stages. Startups also fail when founders don’t realise that different investors invest in different industries. Like a relationship, you have to go with investors who are going to be compatible with your venture. Or else it will be a huge waste of time and effort for both. A mistake founders make is trying to approach investors who are incompatible and chasing them up in order to persuade them. Another reason why startups fail in fundraising is that founders don’t understand that most investors invest at very specific business stages. That is, either the Seed stage, Series A, Series B, Series C, or beyond. It is pointless for you as an early startup founder to spend your time trying to secure funding from an investor who primarily invests in later business stages. Similarly, it would be futile for you to pitch your startup idea to an investor who primarily invests in Unicorns when you know that you only need $1 million because you never intended your startup to hit unicorn status. So, as a founder, first determine how much capital your startup needs from investors. Then research on the fund sizes of your potential investors and zero down on only those investors who are most likely to invest in a startup of your scale.
What to do when Meeting Investors
There are a few simple rules to follow that increase your chances of success of getting funded. The number one rule that every entrepreneur should know is knowing your market fit, who your audience is and have plenty of research done before-hand. A good pitcher will do a lot of research and be confident to present, but a great pitcher will be able to answer every question an investor might throw at them. Second, simplify your pitch to the essentials – why this is a great product (demos are almost a requirement nowadays), why you are precisely the right team to build it, and why together you should all dream about creating the next gigantic company. An investment in a company is a long-term commitment, and most investors see lots of deals. Unless they like you and feel connected to your outcome, they will most certainly not start investing in you. During your meeting, try to strike a balance between confidence and humility. Never cross over into arrogance, avoid defensiveness, but also don’t be a pushover. Be open to intelligent counterpoints, but stand up for what you believe and whether or not you persuade the investor just then, you’ll have made a good impression and will probably get another shot. Lastly, make sure you don’t leave an investor meeting without an attempted close or at very minimum absolute clarity on next steps. Do not just walk out leaving things ambiguous.
So be CONFIDENT, be CONCISE, know your NUMBERS and above all else, try not to focus on valuation. One of the biggest mistakes startups make is focusing on the valuation of the company and mistakenly over-valuing it. Putting immense pressure on the company and the team if things do not according to plan which always happens in the startup world. Things change. Shit happens.
Ideas can evolve or change. But when you earn the trust of the investor by showing them a passionate, honest, and self-aware team, you have already won them over. Your fundraising approach will have a huge impact on the ultimate survival and success of your startup. So, avoid these mistakes during your fundraising. If not, you’ll lose all that $$$.
Warning: Buy Now, Pay Later racks up Debt nearing $1 billion over the coming Christmas holidays.
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