When you’ve finally come up with your amazing business idea and developed a viable business plan, the next move you’d probably make is reaching out to investors (maybe speak to hundreds or more) in the hope of finding the right one for your business. This is if you aren’t considering the option of bootstrapping or you’re planning a business that doesn’t require a lot of capital.
While trying to win these investors, you’re liable to make mistakes that could possibly piss off your prospective capitalist. Here are some of the startup funding mistakes you should avoid when trying to woo investors.
Wasting your investor’s time
To figure out the startup worth investing in, prospective investors and capitalists review at least hundreds if not thousands of startup opportunities per time. You can’t afford to waste time in convincing the investor on why they should ditch other potential businesses for yours.
Save your potential investor’s precious time because they’ve got limited attention span. Be straightforward with your business proposal and grab their attention with your well-researched proposal or pitch deck. Time is precious!
Focusing just on the money
As much as you need the money to fund your business, you also need to build relationships. And asides pitching your business idea, you’re as well pitching yourself and the team that will get the job done.
It is therefore important to build a true relationship with prospective investors and take the connection beyond just trying to get their funds for your business. Build a connection such that even if a prospective investor isn’t able to invest in your business for one reason or another, through the relationship you’ve built, the investor becomes a catalyst to other greater opportunities if your company and team are well branded.
Over-promising and under-delivering
With competition brewing amongst companies trying to woo potential investors, there is a probability that you might promise too much even when your business lack the capacity.
You don’t want your prospective investor to see through your company and find out that you’re ill-equipped to deliver on all the great promises you’ve made or that you’re just trying to impress them. Also, this might hurt your credibility because people respect those who deliver on their promises.
The saying “under-promise and over-deliver” comes to play here. Although under-promising can be a little tricky and discourage an investor from funding your business, you should endeavour to find the balance between your company’s actual potential and what its promises.
Not doing your homework about the investor
One of the big startup funding mistakes is not doing enough research about a prospective investor. Just because an investor funded a fast-moving company doesn’t mean they are good for you.
For example, a growing eCommerce investor may want to invest in your agricultural business. Should you just say ‘Yes!’ to the offer? In as much as investors can put their money in as many sectors they choose, a very salient point to consider is their wealth of experience in the industries they choose to invest in?
As a business owner, it’s important to find out about your potential investor beforehand. You can go as far as asking them if you can talk to a few of their portfolio companies or businesses they’ve invested in as well as find out how experienced they are in your business’ sector.
You might also want to check within your circle to get concrete information about these investors, their reputation and how they behave when the times are rough. All of these give an idea of who you’re about to deal with.
Giving an unrealistic valuation of your company
It is understandable when you brand your company to make any investor want to invest their last penny. However, over-inflating the sense of your company’s value can put off a potential investor.
For instance, your startup has little or no property/assets to its name probably because the company is just starting out and is at its early stage. But because you want to paint the company in a good light, you inflate your current valuation. If you’re able to get away and convince any investor to make a consequential investment in the first time round, it just makes it much more difficult to do it again the next time.
This is because if your company is unable to repeatedly raise increasingly large rounds of funding, investors are going to know that the initial venture was overvalued. It can trigger an investor to back out just because the company couldn’t check its own finances from inception.
To avoid making this mistake, before you start looking for funding, there is need to have a realistic view of how the investment community might value your company.
Your best bet is to seek the help of professionals to know how companies operating within your market segment are being valued.
Not having a clear vision and understanding of your space
Imagine you are lending some money to get back interests within a certain period. But before you give out the funds, you’ll need to understand why the money is borrowed: the same applies to the vision and mission of a company.
A show like the Dragon box startup pitches on YouTube reveals how investors drill entrepreneurs looking to raise funds.
Founders who haven’t taken the time to establish a solid research process, or demonstrate a clear vision of their business and industry knowledge are usually apparent to potential investors. And smart investors will not hesitate to poke holes in these founders’ loopholes.
Asides having a clear vision for your business, one of the startup funding mistakes you should also avoid is having no domain experience in your field, not just you but your core team.
Having discrepancies in your financials
Some mistakes may have a minimum effect on a company’s financials and could be rectified while other mistakes can be more serious and totally misrepresent the company’s financial health.
You don’t want to have financial discrepancies: incorrect books and numbers. This will put the business in a negative financial reading and will only show the investor how faulty your company’s model may be.
In all, avoid making these startup funding mistakes; don’t be in a haste to raise funds for your business. Rather, focus on building a solid foundation first then move to expand your horizons.
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