The 3 Biggest Mistakes Entrepreneurs Make While Fundraising
By Matt Hunckler for Forbes
When a startup decides it’s time to start raising capital, there’s a lot of potential business impacts to consider. If things go well, funding can launch startups into another gear, earning them more customers, traction and publicity than ever. What many founders are less apt to discuss, however, is what happens when fundraising efforts don’t go well.
There are are a lot of do’s and don’ts when it comes to of fundraising, but the following are three common mistakes that entrepreneurs who are new to venture capital tend to make. We tapped into our experienced network of entrepreneurs and investors all over the world to get their advice on how you can stay away from these pitfalls.
Pay close attention — avoiding these mistakes can mean the difference between shooting yourself in the foot, or getting closer to the funding your startup needs to survive.
1.) Focusing on Features
It’s often difficult to communicate the nuts and bolts of your startup in a pitch without feeling like you have to explain the details of the product along the way. This is especially true for the founders who come from a more technical background. It’s important to remember, however, that keeping your pitch straightforward, succinct and focused on your long-term vision will always work in your favor.
“One mistake I see entrepreneurs make time and again is wasting time talking about a product they’ve built or the key features within that product,” said Brian Powers of PactSafe. “Investors want to know what prob
lem your business is solving and why customers will pay for it. The details and features of your product are almost always irrelevant.”
It’s your job as an entrepreneur seeking funding to make sure investors fully understand why your startup matters and how it’s going to impact the market. Leave the product talk for future partner meetings.
2.) Forgetting That Investors Become Partners
When founders are desperate for capital, it’s easy for them to forget that once an investor writes their startup a check, that investor becomes a key partner in the business.
“Sometimes entrepreneurs don’t fully think through the fact that successfully raising capital comes with both the advantage and the cost in equity of adding another partner to your team,” said Prahasith Veluvolu, CEO at Mimir. “For some startups, having another advisor or partner on hand is a huge benefit. For others, it might not make sense.”
Ultimately, it’s up to the founder to weigh the pros and cons of this aspect of taking on capital. If you do decide to pursue funding, fully realizing the implications of working with an investor, it’s then time to consider which investors you want to seek out and approach. If you’re serious about taking on investment, you should be strategic about who you pursue and how you can benefit from working together, not just pitch to any and every investor you come across.
3.) Not Having a Plan Post-Capital
Arguably the worst mistake an entrepreneur can make when entering the fundraising arena is to walk into it blindly without a clear target outcome in mind.
“It’s very apparent when entrepreneurs don’t have a clear idea of what success means,” said Herb Sih, the Managing Partner at Think Big Partners based in Kansas City, MO. “We always want to see that the entrepreneur has laid out a roadmap. We all need to be very clear on where they’re going and how they’re going to get there. “
Having a plan that shows what you plan to actually do with the capital once it’s secured not only demonstrates ultimate preparedness on your part, but shows that you’re committed to your startup’s journey from start to finish. Investors are looking for that kind of dedication — show it to them by having a clear plan for before and after funding.
Now that you know what mistakes to avoid, it’s time to craft that perfect pitch. Check out my top 3 tips for nailing your pitch, no matter the scenario, over on the blog at Verge HQ.
First appeared at Forbes