Top Startup Fundraising Mistakes to Avoid
This guest post was contributed by BJ Lackland, CEO of Lighter Capital.
Raising money for your startup can be a 40 hour per week job—one you have to do in addition to the work-a-day job of managing and growing your company. Raising money is difficult for even the most promising companies out there, so it pays, literally, to avoid common fundraising pitfalls.
Here are four rookie fundraising errors you’ll want to be sure to sidestep when you start your next round of fundraising.
1. Not showing investors your value.
When you first pitch investors, you need to establish two critical things at the beginning:
1. That your business model is viable.
2. That you’re well-positioned to grow fast.
Have some key metrics at your fingertips, such as year-over-year revenue growth, gross margin, number of customers, customer acquisition cost (CAC) plus lifetime value, and projections for the next couple of years. These metrics will help investors determine if your company is worth investing in.
If you do succeed in piquing an investor’s interest, they’ll want to see financials, such as profit
and loss statements and balance sheets for the past 24 months. While you don’t need to bring these to your first pitch, it’s smart to have them prepared so they’re just a click away if a potential investor wants a look-see.
Preparing your financials before anyone asks for them ensures that you can respond to investor questions promptly, which helps build their confidence in your company. Delays in answering fundamental financial questions can send red flags that you’d rather avoid.
2. You haven’t researched the VC firm you’re pitching.
Fit is king when you’re seeking VC money. Before you contact a lead, let alone waste someone’s time at a pitch meeting, make sure that what you’re offering matches what s/he is looking for.
- Is your industry one they invest in?
- Is your startup at the right stage?
- How about the amount of money you’re looking for?
With a little effort and the internet, you can easily locate an investor’s portfolio and investment history online. You just need to invest a little bit of the proverbial shoe leather.
If your company isn’t a match, you’re wasting precious time—yours and theirs. And by effectively disrespecting potential investors, you’re jeopardizing your reputation and your company. The last thing you want is for your company to get a bad rap in the VC world. And today’s bad fit may be tomorrow’s perfect match when your company’s stage and the dollar amount you’re looking for changes. So do your research, focus your time and attention strategically, and respect other people’s time.
3. You don’t have a product.
Gone are the days when investors tossed money at a good idea. Today’s technology makes it easy and affordable enough to build a basic MVP, rendering ideas alone worthless. Besides, if you think something is a good idea, chances are that other entrepreneurs, perhaps many others, are thinking the same thing!
Since a few dedicated co-founders can build an MVP on the side before they need to fundraise, investors have plenty of choices for investing in startups with a proven product and, ideally, some market traction.
So buckle down and build that MVP before you ask anyone to give you money. Your chances of success will be much higher.
4. You aren’t willing to invest in your own idea or product.
Remember the old childhood adage: actions speak louder than words? Well, it’s still true for grownups; and it’s especially true when investors are trying to decide whether or not to take a chance on your startup. So what actions are investors looking for? Any that suggest you’ve made a serious commitment to your company. If you haven’t spent a significant amount of your own time and capital to build your startup, investors are likely to raise their eyebrows. If you aren’t willing to invest in your startup, why should they?
Do you have more questions about fundraising or success stories to share? Let us know in the comments section below or contact Early Growth Financial Services for a free 30-minute financial consultation.
BJ Lackland is the CEO of Lighter Capital, an alternative-financing provider for growing technology companies. BJ has spent his career working with emerging technology companies as both an operating executive and an investor. He has been a venture capitalist, the CFO of a public technology company, an angel investor, and a senior finance and marketing leader at tech startups. Follow BJ @bjlackland.
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