Every journey of entrepreneurship includes the downside of raising funds. Why do I say “downside”? Well, because it often takes months – sometimes more – and requires resources that you might not have available as a startup. We all know that you need capital in order to build a product and get users, but you also need a product and users in order to get money.
Over the years, I have noticed a few common mistakes that entrepreneurs make when trying to raise capital; so I thought I would take the time to address some of these false assumptions.
Below are five common misconceptions about raising funds that I frequently hear from entrepreneurs.
A deck is something you send to potential investors that includes all the basic information about your startup. What problem are you solving? How are you solving it? Who are you? Who is your team? What is the market size? How do you plan on penetrating that market? What’s the timeline?
Many startups think that their product is so good that investors won’t need a deck! Others might think the investors should just trust them, so it’s not necessary. Maybe you’re uncomfortable sending a deck before the meeting, so you decide you’ll send one afterwards. Guys — no.
You probably need investors right now more than they need you. So, you really need to play by their rules, and the first rule is sending a deck that answers the question “Why should I participate in this meeting with you?”
So, quit wasting your time fighting against it and start using your time to hire top-class designers and copywriters to create that amazing deck for you!
Anybody who has ever raised capital or invested will tell you that an intro from a portfolio CEO or a friend will always be 100 times more effective than a cold email! These days, we’re fortunate enough to have LinkedIn and other networks to show you who can facilitate an introduction like this.
Sending a cold email to an investor will be an ineffective waste of time, when you have the opportunity to find mutual contacts and get a warm introduction. Forget about cold emails.
Just like an investor chooses his or his investments wisely, you need to choose your investor wisely. There are numerous factors to consider – such as the value they add beyond a check – but one of the most crucial things to look for is the relevancy of an investor before you pitch to them.
Do they invest in your niche or space? Do they invest at this specific stage of startup development? Have they invested in a direct competitor of yours?
Just checking and browsing through their website is simply not enough. Get in contact with their previous CEOs, and research some of their most recent investments. Just like any other part of building a successful company, you need to do your homework and come prepared.
Of course, you need money for the oxygen of your company — and you might have heard about companies raising massive financing rounds. But before you take that jump, you need to remember to breathe, relax, and think carefully if now really is the ideal time to raise money.
Raising capital too soon means that the terms are defined by the investor — not you. Waiting a little while and first gaining some traction gives you more leverage.
There’s an amazing quote out there by Leonardo da Vinci which goes: “Simplicity is the ultimate sophistication.”
The ability to communicate your idea in a simple way will always triumph over going into a meeting full of niche industry jargon, superlatives, or harping on about the huge size of your potential market.
The best route to go is to always keep things simple. Be transparent, speak openly of any challenges you’re facing, and then focus on your vision and plan to see it all come to fruition. Throwing around fancy buzzwords with the intention of looking smart is a bad idea, as it does the complete opposite.
Raising capital for your startup is a required component for the majority of companies, so make sure that you figure out what works the best with investors, and align yourself and your process accordingly. It’ll save you a ton of time and money — two things that every entrepreneur needs more of. 😉
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