Until you participate in fundraising, launching your own company is not only expensive but also challenging.
Kudos to bootstrapped founders, by the way.
Thousands of things need to be done, and thousands more you didn’t foresee are coming. Regardless of how small or large the company is, expenses are always a part of it.
You require earnings and, more importantly, profits to continue funding the startup operations. For every CEO, your answer to expenses and your board.
Now, to stay in business, you need to raise a sizable amount of funding unless you’re able to bootstrap operations yourself. You cannot just send emails to investors requesting their financial support.
We both wish life were that simple, but alas, it isn’t!
There are numerous business consequences to take into account when seeking funding. If everything goes as planned, investment can push startups into high gear, bringing in more clients, momentum, and exposure. Unfortunately, many entrepreneurs don’t discuss what occurs when fundraising does not go as planned.
Nevertheless, the good news is that after working with 200+ startups, we have gathered all the expert tips from successful entrepreneurs about what NOT to do when raising funds for your startup. So keep on reading.
Top 6 Startup Fundraising Mistakes
Mistake #1. Fundraising too soon
All startup begins with a concept – a problem, a solution, or even a complete working prototype. You have this feeling that you may simply be the entrepreneur who wants to turn this “concept” into a successful company. Perhaps even “transform the world.”
It doesn’t matter what kind of software it is; just remember one vital point:
“A concept has no value. The key is proper execution that generates sales”.
Take a moment to reflect on that.
Whenever you approach investors for money, you must be “ready.” If you want to bargain, you’ll need strength, and also, the earlier in the business you are, the more you’ll have to forgo.
So what is the best moment to search for money? That is a good question.
It depends on several variables, including the current state of your workforce, initiative, and type of software; whether this is your first time doing it; your past performance; as well as the size of the potential industry you are targeting.
Entrepreneurs should generally wait to fundraise until they’ve developed a prototype or MVP. Shareholders are more likely to make an investment after seeing the working prototype and how you are planning to scale it. You need to have some “skin in the game.”
Mistake #2. Fundraising too late
Interestingly, waiting to long to begin raising funds is an entrepreneurs’ second biggest blunder. You’ve started establishing your company and are moving forward at a breakneck rate, performing at all times throughout the day. You’re running a thousand miles per minute and may have employed a few folks. Why spend some time and pause to concentrate on raising funds? You can quickly create a couple of contract sheets with the pitch deck & a few short emails, correct?
Raising funds is difficult, no matter how well everything is going. This takes exponentially longer than you anticipate, even if you’re gaining momentum and are creating cutting-edge software.
Mistake #3. Not researching the target market.
An investor won’t put money into an endeavor that is unlikely to be successful. Investors are increasingly focusing on multimillion-dollar industries overseas. Before attempting to persuade VCs of your promising market potential, conducting your own calculations and research is advisable. The two most popular methods for developing a market-sizing study are bottom-up and top-down evaluation. The latter is simpler to calculate, whereas the other is much more accurate and complex. When executed properly, both strategies are excellent and attract investors.
1. You’ve gotten accustomed to the dynamics of your team.
Consider it from the standpoint of an investor. They would like to collaborate on something or engage in a community of like-minded individuals who have a shared objective. Although it’s crucial to have a leadership quality, the dynamics of the organization itself also matter a lot. Stockholders are eager to witness a team where everyone understands their roles. Additionally, one individual should speak for and guide the entire clan. The investor might prefer to see the workforce right away rather than giving you time to put one together.
2. Skipping Small Talk
Many business owners plan how to dive into the pitching, go over the presentations, and commence their narrative. But they fail to recognize the significance of the initial moments of interaction with investors. That brief window of time offers a significant chance to engage stockholders on a personal level and has the potential to significantly influence their impression. However, some people could find it awkward. And some entrepreneurs respond with one-word answers about their backgrounds or other straightforward inquiries from the pitch, Practice, Practice, Practice.
Mistake #4. You are requesting too much money.
Sharing information about your multimillion-dollar firm is incredibly tempting. Nevertheless, you must also be aware of the higher standard you have established for the growth figures you must achieve eventually. If you don’t meet the initial targets you set for yourself, receiving funding in the upcoming stage might be challenging. Early in the cycle, raising the standard too higher will hinder the operation and decrease your possibility of obtaining additional funding. Be reasonable with your calculations and proceed gradually.
Mistake #5. Not being transparent
Startups must always be up-forward and transparent about their objectives. If an entrepreneur intends to approach investors for more money but fails to indicate this in the presentation, it can become problematic afterward. In contrast, exaggerating a product’s benefits would only cause dissatisfaction if investors fund a company because of a deceptive claim. Although a shareholder’s choice can be largely on a prediction of how well a business will evolve in the future, they still need to be aware of all the nuances. Transparency is always the correct approach when developing a stakeholder deck.
Mistake #6. Not following up
Most investors have similar schedules to yours or perhaps more hectic. This indicates that sometimes emails are overlooked, and things slip between the gaps. Therefore if you haven’t received any feedback from them, get in touch with them. Following your presentation, it’s a sensible move to catch up, thank them for their time, and inquire if they have any further concerns.
While fundraising isn’t enjoyable, it does not have to be awful, either. Identifying prospects & convincing them regarding your software’s future impact is hard yet exciting. Keep your anxiety and excitement in check. Do your job, market your software, hustle hard, and prevent the mistakes mentioned above. And your probability of succeeding will be maximized.
However, you should also have feature-rich software and the strategic backing of a seasoned enterprise-level IT Development partner. Smart, strategic vendors, produce confidence in your funders. Step one, we all know, is having a skilled dev team. Here outsourcing might be the best option for you. First, have a solid core in-house solutions team, and augment them with outsourced, seasoned developers with excessive industry experience from Netsmartz. The lower cost of offshore resources provides the budget to onboard skilled domain knowledge you would not be able to afford domestically. Our Elastic team’s engagement model designed for Startups maps their vision into a scalable software development team with fractional and full-time resources to maximize the ROI of the development budget.
So without wasting more time, get in touch with us today.