5 non-obvious fundraising mistakes
The world doesn’t need another generic self-congratulatory article on how to raise money, but having wrapped up our most recent capital raise, here’s my quick take at passing along some non-obvious and important advice to other entrepreneurs considering raising outside capital.
1. Never follow up after the first date.
Yes, that’s right. Don’t follow up with an investor after the first meeting. Let them follow up with you. Investors know what they’re looking for, and if they see it in you and your plan, believe me: they will follow up with you. Like dating, raising money has all kinds of human power dynamics. Even the slightest whiff of desperation is a red flag. But be careful, arrogance is a close second, so don’t make it too much of a game. Be responsive once you’re engaged in conversation with an investor.
2. Don’t promise the moon and the stars.
The media loves rocketships and overnight success stories. So do investors. But there’s a reason billion-dollar startups are called unicorns.
Don’t pretend to be something you’re not. While you should show your mastery and commitment to the business, over-promising undermines your credibility and makes you less back-able. Good investors want to see a CEO with massive ambition, judiciously applied.
3. Don’t overvalue valuation.
Remember, you are raising capital, not selling the company. Play the long game. You want your new investors to make money with you, not break even. If you’re lucky enough to get multiple offers, solve for quality of partner, quality of terms, and valuation, in that order.
4. Disagree with them.
You are the entrepreneur. This is your business and your career. You’ve spent thousands of hours on the business, and will spend thousands more. Even your most engaged investors will devote a fraction of that time to your company.
So listen well, hear their feedback, and always be respectful — but don’t assume they’re right just because they write the checks and start changing your plans. Force yourself to remain an independent thinker, and make sure your relationship with them reflects that. They want to see that, and more importantly, independent critical thinking fro you is what’s best for your company.
5. Preach to the choir; it’s much easier than converting the pagans.
Spending lots of time persuading a skeptical investor is a fool’s errand. There are some amazing investors I had the opportunity to pitch as part of our series B and our series C financing rounds, and while on paper, they were ideal investors for our business (focused on marketplaces & networks), they weren’t buying it. Investors don’t change their minds overnight — it just doesn’t happen. Your time is much better spent finding and preaching to “the choir” — investors who understand your space *and* are following up with you after the first date — than endeavoring to convert “the pagans” who aren’t convinced and giving you the slow “no”.
