6 Fundraising Mistakes That Founders Should Avoid Making
Today, there are more founders and startups than say a decade ago, but still only about 8% of them secure institutional funding. While several factors can affect this, there’s much more that startups can do to leave no stone unturned from their end.
After speaking to over 1,000 early-stage startups, we identified deeper nuances which a sizable percentage of founders often oversee. Here’s a list we put together with the aim of helping founders looking to raise funds:
This part focuses on what founders should communicate about the business during the pitch.
- Defining the Problem Statement
The raison d’etre of the startup.
Founders tend to focus the problem statement on the product rather than the purpose of building the product. In other words, investors want to know more about the problem you are trying to solve.
This helps us understand how deep of a pain point it is — whether your product (which will come later) is a painkiller or a vitamin C.
2. Talking About the Team
How does the team tie to the problem statement?
While founders always talk about their team, they sometimes miss making more relevant connections. It’s helpful to draw more attention to the qualities of the team that make it the perfect fit to both solve the problem and understand the customer segment well.
Investors would be happiest knowing that it matters to you enough to persevere for more than just profit.
3. Explaining the Product
What does the end-to-end user journey look like?
It is understandable for founders to get deeply involved in the product, but this often prevents them from taking a step back. Speak to us like you’re speaking to your first customers.
Once you do, investors can also understand the value-add of your product and the significance of its various features better.
This part relates to how the team interacts or presents itself during and after the pitch.
4. Defining the Timeline
Give a reasonable timeline to your investors.
We always appreciate founders who are open about the time they want to close a deal by. However, shorter time periods of around one or two days restrict investors from completing due diligence.
Sufficient time (a week or ten days) helps us build conviction. At the same time, if your investor exceeds several weeks in decision making, it’s best to follow-up with them.
5. Researching on the VC
Does your pitch tie to the investor’s thesis?
Investors usually have an FAQ or About Us section on their website or convey their investment thesis through media or social media. However, pitches don’t always reflect adequate research.
For example, the startup may belong to a sector that the investor has not expressed an interest in. Research can also help startups to tweak their pitch to highlight aspects that the investor looks out for. For example, are the investors more focused on the market or team?
This would help utilize the meeting for more relevant questions and also avoid an early mismatch.
6. Conveying All Information
Don’t hide half the truth.
Sometimes, founders tend to conceal or fabricate traction numbers or active user base count. While showing promising numbers in the early stages can be challenging, false or incomplete information leads to an unfavorable decision.
Founders who prove themselves to be solution oriented are more promising than those who avoid the problem.
Giving some time for dedicated preparation before a pitch can make your case much stronger. Moreover, investors are there to support you, not to look for mistakes. If you pay closer attention, you’ll be in for a meaningful conversation with your investors.