Don’t blow your chance at raising millions of dollars for your startup by making these amateur mistakes.
Having sat through hundreds of fundraising pitches, receiving even more requests for investments and meeting with countless angels and VCs, I’ve seen these ten blunders frequently crush the chances of entrepreneurs getting the money they so desperately need.
You can have an amazing product or service, be hyper-talented and intelligent, but if you mess up in these areas your startup may never get the chance to reach its full potential.
1) Demanding Pricey Valuations
Every founder wants to give birth to a unicorn overnight, and venture capital firms want to secure dragons for their portfolios. There has been a lot of concern over how startups are valued in the past few years. Now the markets may seem a little more comfortable with billions in valuations for companies that really haven’t proven themselves yet.
Still, demanding too much upfront may make you seem unrealistic, just greedy, or not a fit for the investors you are presenting to. Unless you’ve already secured capital from well known VCs, your startup’s future may not be nearly as bright as it could be, if you land this round of funding. Don’t sabotage it before you get going.
You should do research on direct and indirect competitors to understand how much capital they raised at your same stage and perhaps gain some insight into their valuations. There are great tools you can use to gather this data such as Crunchbase or PitchBook.
2) Negotiating Against Yourself
This often happens when founders state their valuation first, and then fall into negotiations and are asked to backup their figures. You should know what other startups are being valued at in the same stage, especially in your industry. Yet, you neither want to oversell or undersell yourself.
Know what you need, what’s fair, what you can live with, and when to let the investors do the talking instead. They may see things you don’t. That could give you a better valuation than you thought.
As I describe in my book, The Art of Startup Fundraising, in the event you are asked for the valuation of your company, give a range based on what the market has paid for direct or indirect competitors at your same stage. That way you are not pricing yourself. Only disclose your valuation if the round is already structured with a lead investor covering 20 to 25% of the round.
3) Failing to Build an Investor Network
Smart entrepreneurs build an investor network in advance. Instead of running tight on time, and being under pressure once they start fundraising, savvy founders will have already amassed a good number of contacts and will have been nurturing those relationships. Then there are far more doors to knock on, and potentially less commitment needed from each participant in the round.
There are great events out there that you can attend in order to meet investors and grow your network. Some of these events could be the ones organized by Web Summit, if you are looking for something at a larger scale, or the events organized by Summit Series, if you are looking for something a bit more intimate.
As the saying goes “Ask for money, get advice. Ask for advice, get money twice.“ While you are building your investor network, keep asking these individuals for feedback. This process will eventually lead you to finding your lead investor.
4) Pitch Decks
It’s crazy to see how cheap some entrepreneurs try to be with their pitch decks. They want to raise millions, become overnight billionaires, get attention from big name investors and get featured on magazine covers. Yet, they aren’t spending more on their deck than the investor they are pitching spent on their lunch. Think about it.
Don’t go broke, and shelve your whole business while you try to find investors and raise money. Though even if you can’t stomach another ramen or pea protein shake, you need to invest in creating a great deck. That’s a six, seven or eight figure check coming back.
Find some great templates and proven slides and sequences, and invest well in having them polished for success. For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400M (see it here)
5) Not Selling Yourself
With few exceptions, what investors are really banking on is you. They want the numbers to make sense, and for the idea to be exciting. Though it is really about the founders. You may not believe it yet, but there can be many pivots and tweaks down the road.
Investors are looking for a good driver who can stay the course. Someone they can believe in and want to align with, regardless of the deck on the screen. What makes you the person they can count on? The one who can get it done and will stick it out, even when it is tough?
6) NDAs
There may be a place and time for Non-Disclosure and Non-Compete Agreements. This probably isn’t it. Especially if you are still an early stage startup and at in your seed or pre-seed round. If you already have trademarks and patents, that’s great. They may be valuable someday. You probably don’t want your staff running off with your secrets and client base, and going to the competition or setting up their own shop. Yet, for the most part, this paperwork is premature and counterproductive at this stage.
Serious investors aren’t going to lock themselves into agreements with the thousands of entrepreneurs that try to pitch them every year. They don’t have time to review them. They aren’t going to spend thousands on their legal team reviewing them if you aren’t making a deal.
Right now, you want and need as much exposure, sharing and attention on your pitch deck and startup as possible. Don’t keep it a secret.
7) Internal Planning & Alignment
Don’t keep your team in the dark or just floating around your new open workspace. You need an actual fundraising plan and strategy. You should know all the important factors that matter in successful fundraising, including legal liabilities, controlling PR, brand and reputation management, and pushing and recording key metrics.
That means your team needs to be focused on these factors too. They need to be working towards the same goals and understand why. They need to know the answers to common questions and how not to sabotage your efforts. Unless they know the plan and you have buy-in from them, everything could fall apart at the last minute.
8) Not Connecting on a Personal Level
Being a well qualified individual and having the grit and resilience to stick it out is a part of acing the fundraising process. So, is being able to connect on a personal level. You want to be likable, trustworthy and be able to build a real relationship.
It’s these things that will help seal the deal and make all the difference when things don’t go according to plan later. It will also help you get a better feel for and understanding of who your investors and their representatives are as people too. That will reveal who you really want to be involved in your business.
9) Focusing on the Money
Entrepreneurs who are just focused on getting all the money they can today, regardless of where it comes from are a big red flag for serious investors. It’s great to be excited about your venture, optimistic, and have big goals. Both investor and founder are there to benefit from a monetary arrangement.
Though if immediate money is all you are worried about, you don’t care who is writing the check and you don’t have a longer term strategy for the next round or a backup to survive without this money, that’s concerning. It suggests you’ll probably just hop onto the next gold rush and head in another direction at the drop of a dime. It is going to raise questions about how you will use the funds.
If you really care about your venture you will care more about who you partner with than the money. You will find a way to make it work without it. You’ll be strategic in selecting investors and your terms so that you can achieve a lot more later.
10) Familiarity with Term Sheets
Where many entrepreneurs mess it all up is after a successful pitch. You should be going in expecting to set these investors on fire and having them pulling out their pens and checkbooks, and even competing with each other.
That means you also need to know what reasonable terms and conditions are. What’s a reasonable royalty, preferred rate of return, equity split, and number of board seats to give up? If you don’t know you are going to take a terrible deal or curve the whole deal into the gutter.
While it is smart to take time to think about it, and there will be due diligence to do, entrepreneurs need to be prepared to intelligently discuss terms on the spot. Capital won’t wait forever. Investors need that money working and earning for them, and there is a long line of others waiting to pitch right behind you.
