Home / Business Lessons / 9 Common Fundraising Mistakes Every Startup Entrepreneur Should Avoid [ For Successful Startup Funding ]

9 Common Fundraising Mistakes Every Startup Entrepreneur Should Avoid [ For Successful Startup Funding ]

First and foremost, getting funded by Angels or Venture Capitalists are really hard if you are an early stage startup. On top of it, if you are committing irreversible blunders, as a startup founder you will have a tough time raising funds. For that reason, you should avoid committing some common fundraising mistakes.

Here is the list of those 9 common fundraising mistakes every startup founder should avoid:

 

Common Fundraising Mistakes

 

Fundraising Mistake(s) #1:

Failing to Network / Connect With People.

Not making worthy connections is the most common fundraising mistakes that startup founders commit. With my experience of meeting several successful entrepreneurs, I have understood one thing very clearly – “Fundraising for your startup is easy if you have the right connections”. Without the right networking or connections, it is really very hard to get in touch with the investors. There are thousands of startup founders like you who are desperately looking to raise money from investors. If you have strong connections associated with the startup ecosystem they would refer/recommend you to the right investor. Things go pretty much easy when you are recommended. Investors have trust in startup founders who have been referred by someone whom they know.

My suggestion for you is to not to miss any single opportunity of meeting and making connections with the right people. Attend every conference, meeting, summits related to startups and come back home with some valid connections. Once you get a connection, nurture them and make friends. The rest goes automatically. Get connected to people on social media like LinkedIn and Quora.

Fundraising Mistake(s) #2:

Not being prepared with the due diligence documents.

There are stories of investors taking back their word after agreeing to invest just because the startup founders were not ready with their due diligence documents pertaining to the company. Taking several weeks to get your documents ready shows your poor quality of document maintenance and unpreparedness to seek funding.

Before you pitch, make sure you have all the documents ready in your google drive or dropbox. You should be quick enough to share the documents immediately when an investor asks for it. If you want to know about the due diligence documents that needs to be kept ready, you should go through this blog post: Due Diligence Process Documents

Fundraising Mistake(s) #3:

Pitching To The Wrong Investors.

Getting investors for your startup is a great news. But, a wrong investor can ruin your startup to the extent that you cannot get it back to normal. There are several stories of startup shut down because of an unhealthy founder-investor relationship. It is very crucial to seek right investors in order to take your startup to the next progressive level. Here is the list of qualities that you should look for in your investors.

  • Investors should be financially very strong
  • Investors should have incredible domain expertise
  • Investors should have a strong network
  • Investors should have a high degree of patience
  • Investors should be trustworthy
  • Investors should have a high level of integrity
  • Investors should have quick decision-making skills
  • Investors should enjoy working with entrepreneurs

For detailed information, I would recommend you to go through this blog post: 8 Top Qualities To Look For In An Angel Investor (Or Venture Capitalists)

Fundraising Mistake(s) #4:

Too Many Founders (Or Equity Holders) / Lack Of Synergy Within Team.

One or two founders are good enough to make decisions. But, when a startup is more of founding members, investors hesitate to invest. They fear convincing and dealing with multiple brains of the team. Also, having too many co-founders means having to distribute equity to all. Too much of equity in too many hands is treated to be a negative aspect. If founders are inexperienced, it will only add to the chaos. It’s not only about the founders but also too many team members at the beginning with lack of synergy (each having their own version of the goal for the startup) is considered as a danger sign. Therefore, hiring and bringing in co-founders should be with a well-thought strategy keeping fundraising goals in mind.

Fundraising Mistake(s) #5:

Lying To Potential Investors.

Giving false and over-optimistic futuristic revenue and market share projections about your startup product/service is not warmly welcomed by investors at any cost. Your investors are more experienced than you and they have gone through several pitches from several startup entrepreneurs before you did. You cannot fool them. If tried to do, you would be considered more like a fraud or a scamster. Forget about getting funded by the one sitting in front of you, you would be blacklisted among other investors too.

Be realistic and transparent about everything. You can convince your shortcomings by promising a good result in the future. This builds trust with your dealings.

Fundraising Mistake(s) #6:

Wasting Time In Deal-Making Process.

Assume there is a scenario wherein, the investors are happy with your pitch, your terms and conditions and agree to invest in your startup. They also give you some time to rethink the deal and get back to them for the final agreement signing. It happens so sometimes that, you feel, you could have negotiated a particular term much better and take “some more time” to sign the final deal. Here lies the mistake. This “some more time” can be costly. Investors will not wait. During this period of “some more time”, there are chances that your potential investor may invest the same amount into some other startups. You will lose the opportunity and your investments.

Before your pitch, get the terms and conditions ready. Be clear about what you get and what you will not. Never repent after the investor meeting has taken place. It is very hard to get an investor to say “Yes” and if you try to play around with that, you end up paying a huge price. 

Fundraising Mistake(s) #7:

Trying To Persuade Investors When Overhead is High.

Forget getting funded if you are already running into huge loses. No investor would like to be a savior. Though you might not need a savior, your potential investor strongly feels you are looking for one. And they do not want to take chances with your startup as they are worried about their money.

Fundraising Mistake(s) #8:

Having No Big Market Size.

Do not waste time in looking for investors for your startup if you do not have massive customers for your product/service. Investors are looking for products/service that can have an impact on a massive customer base. Your startup idea/product/service may be extraordinarily unique, but, it is of no value to investors if there are no takers for it.

Fundraising Mistake(s) #9:

Poor Usage Of Previous Funds.

Investors are strongly connected to one another. Either good or bad, the news of your startup spreads like wildfire. If you have burned all the cash received from previous funding and have not shown much progress, its a warning sign for other investors. So, make use of each round of funding in a meaningful progressive way. Having proof of progressive outcomes from the previous rounds of funding increases your chances of getting funded.

These are the 9 common fundraising mistakes committed by most of the entrepreneurs while seeking funds for their startup. Please avoid these costly fundraising mistakes. Hope you enjoyed and learned a lot as you read this blog post. Feel free to comment your opinions below:

Further Reading:

How Do Venture Capitalists Make Money?

What Most People Read Before Reading This Blog Post:

10 Ways To Create Buzz Around Your Startup [ As Part Of Fundraising Efforts ]

About Subhash K U

Subhash K U
Subhash.K.U is India’s leading Business Explorer and highest paid Business Strategist. He is famously known for his business blog BusyMonk.com. He helps aspiring entrepreneurs and business owners to take their businesses to the next level through strategic business programs that he conducts throughout the world. He loves speaking to business owners to learn and understand their successful business models and strategies as he strongly feels that there is no single fixed formula for every kind of business.

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