Fundraising for a startup is an involved process. At any step of the way, the system may falter and lead to the company missing out on significant funding. There's no step-by-step methodology for developing a startup funding plan. Each startup is unique, both in the ideas they present and in the promises that they make to customers.
However, in fundraising, it's not the customers' input that matters most. What’s vital is what potential investors think of the company. A startup's fundraising efforts hinge on its ability to make itself and its business ideas attractive. Below, 12 members of Young Entrepreneur Council reflect on the big mistakes that they made while fundraising, and offer advice on how today's startup entrepreneurs can avoid falling into the same trap.
1. Not Seeking Professional Advice
As entrepreneurs, we naturally try to overcome any obstacle that comes our way on our own. While this conquering spirit is part of what makes entrepreneurs great, it can also be a fault. When raising funds for your startup, it’s critically important to seek the advice of professionals to better understand your funding needs and requirements. The biggest questions of any fundraising effort are, “How much do I need?” and “How much will it cost me?” Consulting an accountant with real valuation experience can help you pinpoint these answers so you don’t waste time and money on the wrong decisions down the road. - Jordan Conrad, Writing Explained
2. Raising Too Much Money
Raising too much money is a huge mistake many startups make. They think they want as much as they can get, but forget that this increases the amount of scrutiny and reporting they'll face, as well as the equity they'll give up. While a nice cushion of startup capital creates a comfortable runway, too much money in the system can lead to disaster. The expenses won't be justifiable later on, and you'll be forced to go through firing rounds, closing office spaces and budget cuts. Avoid these problems entirely by being down to earth and reasonable with the amount of capital you need and aiming for just above that number. - Frederik Bussler, AngelStarter
3. Not Asking For Enough
I’m involved in financial services for small businesses and startups, and I see this over and over again—people ask for less funding than they need. Ask for the amount supported by your realistic financial projections and business plan. Don’t worry about scaring funders by asking for what seems to be a large amount of money, as long as you are realistic about the future profitability of your business and your risk profile. - John Lie-Nielsen, One Park Financial
4. Giving Up After The First Rejection
After my first loan was rejected, I was disheartened and figured entrepreneurial life wasn't for me. It was a huge blow to my self-esteem because I had already spent so much time on my brand only for my ideas to get rejected. Luckily, I got some sense talked into me and decided to continue pitching, and I got what I sought out for eventually. It's crucial to be persistent in all areas of your business endeavors so you get what you want. - Stephanie Wells, Formidable Forms
5. Asking Too Early
We invented both hardware and software for a tech product. With an early proof of our concept, we took meetings with angel investors, venture capital providers and even publicized pitch events and shows. Going through the rounds, there was a sense of hesitation and a disconnect in the valuation of the company. Starting these conversations too early left too much room for speculation. Hindsight being 20/20, it's best to take the product as far as possible to take advantage of your valuation. Showing up too early resulted in us pitching a dream rather than a business. - Dalip Jaggi, Branch
6. Giving Up Too Much Of The Company
One of the worst decisions someone can make when trying to raise capital for their business, is giving up too much ownership in the company. While a deal that includes a good portion of your business might seem like a good idea, it could result in a much higher cost down the road. Try to keep ownership within the company, and try to raise or access funds in any other ways possible (even a credit card with a higher interest rate is a preferred option). A great way to think of this would be if Mark Zuckerberg gave a million investor 10% of Facebook back when it was just starting. That sounds like some serious money at the time, but that 10% share would be worth billions today! - Zac Johnson, Blogger
7. Taking On Partners
The only time you should ever take on business partners for a venture is when they contribute long-term value to the project. I made the mistake of taking on partners just to get capital for a resource-intensive plan. Fast forward nine months, the company was profitable and the partners had nothing to contribute anymore, but I was out of a bunch of equity. I'd encourage entrepreneurs to figure out how much capital they actually need and what they're willing to sacrifice for it. In general, equity should not be the answer. - Karl Kangur, Above House
8. Bringing Up Issues During Negotiation
If you come into negotiation with brand new information, investors are not going to take to it kindly, especially if it’s bad. It's important to lay everything out beforehand and be honest about your situation so you don't look bad when you meet up for discussion. It'll make investors less likely to want to work with you, which is the last thing you want when trying to raise funds. - Jared Atchison, WPForms
9. Having No Plan For Scaling
Initially, I had an idea in my mind and the funds to make it happen. However, I wasn't sure what to do when it became time to scale my business up. Financially, I was also unsure of how much money I would need to grow. I recommend planning the process of scaling up well in advance. Start meeting with investors, secure deals and come up with a solid plan. - John Turner, SeedProd LLC
10. Being Underprepared
Very early into my career, I learned a hard lesson about being underprepared before meeting a big VC. I realized very early on that it's important to really know all the big details about your market and the players involved. The better you know your industry, business model, risks and potential rewards, the more likely you will be to appear credible to a potential investor. - Nicole Munoz, Nicole Munoz Consulting, Inc.
11. Prioritizing Product
The biggest mistake I've made when it comes to raising capital for startups (particularly tech startups) is prioritizing product over traction. As an engineer, I convinced myself that investors would index heavily on technology and would be eager to bust out their checkbooks if you've built a great product. Unfortunately, this is far from the case. What investors typically want to see is real customers that care enough about the problem you are solving for them to pay you. Avoid falling into this expensive trap by prioritizing traction over product and building what you need to build to deliver on your value proposition. - Zach Ferres, Coplex
12. Talking About Features Instead Of The Business
If you built a product, chances are you know every detail and will want to explain that to a potential investor. However, an investor is investing in not just a product, but in your company with the goal of making money. Explaining how they are going to get a return on their investment by the business succeeding is key. This means you need to explain how the business will generate and grow revenue. It also means explaining why you are unique and someone else would struggle to do what you do. Finally, depending on the investor, you need to make sure the vision of the company aligns with what they are looking for. Are you trying to be a unicorn or just a lifestyle business? - Kasey Kaplan, KWK Studio & Quuie
