Assume you've just started a business and have an innovative product idea. You and your team have been working tirelessly for months to develop your idea into a real product.
If the process fails somewhere along the road, the corporation could lose out on a large amount of funding. You've done your research and identified the ideal consumer. The moment has come when you're ready to put your vision into action.
Unless you have a bunch of money which in most cases startups tend to lack, you'll need to raise it, and pitching investors is the way to do it.
When it comes to fundraising for startups, it's not the customer's opinion that counts. Investors usually consider what’s possible and what matters within your business. Below are 5 common mistakes in fundraising that first-time entrepreneurs tend to make.
#1. Fail to research on your best fit investors
In terms of investing, researching your investor is the key to a winning game. The first stage is to identify the right investors.
If you are looking for investors, make sure you find one who finance other businesses just like yours in terms of size, stage and business plan.
A firm's success depends on its founders' ability to comprehend how their company fits into an investor's bigger portfolio and use that information to reinforce their argument.
Before meeting with investors, founders should consider all possible questions and requests. With this kind of information, startup owners will be able to address investor inquiries promptly and demonstrate that their company is ready to move on with the next step.
#2. Fundraising too early
Not everything happens overnight.
Value, market, and team all depend on timing. Consider when the best moment is to raise money for your cause. For each rise, give yourself six to eight months to complete the process.
Most companies are "too early" due to the fact that they haven't accomplished the important validation work to reduce investment risk .
Early-stage investing is notoriously dangerous, but needless risk should not be tolerated either.
Take the time to investigate all of the fundamental assumptions that underlie your business model before applying.
Are you able to use your unit economics at a large scale? Will your solution lead to a shift in client behavior? Are you sure customer acquisition costs (CAC) can be kept down?
To prove most of them, you need traction. But if you're unable to achieve it without money, look for other ways to collect data or run tests instead. Be sure you're ready to apply by getting outside confirmation.
#3 Intensely complicating the pitch
It's easy to forget as a founder that most investors do not understand or aren't as well educated about your firm as you are.
Be sure to focus on the problem you are trying to solve when creating your pitch deck (with a little bit of traction or credibility thrown in). Overly technical presentations may potentially leave audiences wondering, "So what?"
Pitch decks should have a maximum of 20 slides and include: the problem, solution, market, product, traction, team, financials, and amount being funded.
The average pitch deck should have no more than 20 slides. If possible, founders should create two versions of the pitch deck:
one for real-time presentations that contains fewer words and allows presenters to elaborate in person,
and a second version with more text that can be used in follow-up or for others who may not attend during the presentation.
#4 Overly prioritizing your products
Prioritizing product over traction is the worst mistake in fundraising for startups a new entrepreneur could make (especially tech startups).
Having worked in the technology industry for many years, many people were certain that investors would place high value on technology and be happy to part with their cash when a wonderful product was created for them.
Unfortunately, this isn't always the case. Real consumers that are willing to pay for your services or to purchase your products are what investors are looking for.
By prioritizing traction over product, you can avoid falling into this costly trap.
#5. Making an investment request during the first meeting
A major disadvantage exists if your initial engagement with a potential investor is to extend your hand and ask for money.
Network as soon as you can to get off to a good start. To find investors or people who can assist you, take advantage of your existing connections and contacts. Seek out information or assistance.
Founders are adored by most investors, and they will gladly give you their time and attention. Send a follow-up email to let them know how you've been doing. Your next round of funding will come from a group of angels or venture capitalists who are familiar with you, your startup, and have a positive impression of you.
Conclusion
Fundraising for startups is a time-consuming and difficult task. Angels and venture capitalists are unlikely to invest in your firm, even if you do everything perfectly. Unforced errors, on the other hand, can quickly lead to failure.
In the past few years, Golden Owl has been a trusted consulting agency for many startups and small businesses, and we can be your wonderful partner in helping you make your vision a reality. Please contact us if you have any questions or issues. Let us assist you in any way we can!
