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Written by
Katy Ratican
19 Jan 2022
4 minutes

Common mistakes when fundraising for your startup

The mistakes entrepreneurs should avoid when trying to raise funds for their startup
Startup fundraising mistakes

Startup fundraising is a complicated and challenging process. You have to prepare your business plan with your opportunities and challenges and hope that the investors understand your idea, its potential and the backing it would need. But quite often entrepreneurs end up making mistakes that derail their startup fundraising efforts.

If you get your startup fundraising right, you’ll have enough funds to expand your product or service, hire more people and invest in marketing. Get it wrong and you may be looking at a severe cash crunch or a long and tedious process. To avoid that, you should watch out for these eight mistakes entrepreneurs make during startup fundraising.

8 mistakes to avoid in startup fundraising

1. Being underprepared

Among the many mistakes that entrepreneurs make, the most damaging is a lack of preparation. Before startup fundraising, founders should know all the important information about the market, competition and their target audience.

2. Focusing on features and not the business

While you may be proud of your product features, investors are more interested in your business model, its rate of growth and the structures you’ve put in place. When they want to know how you would generate revenue, the last thing they want to hear is the intricacies of your product.

3. Not getting professional guidance

The venture capital world is a mighty complex one. As you plan your startup fundraising, it’s important to reach out to professionals to get an objective view of your business. They will tell you the amount you should be seeking and the individuals you should contact.

4. Not seeking enough funds

Asking for less than what you need is another common mistake in startup fundraising. Once you’ve analysed your startup costs and figured out what you need to scale up, you should ask for enough funds that will help take your business to the next level.

5. Seeking funds too early

Startup fundraising from venture capitalists isn’t that different from seeking a small business loan. Investors want to see proof of concept for your product or service. They want to know whether it has what it takes to get users interested. When you approach them too early, it will be difficult for them to believe what you say.

6. Approaching the wrong investors

As you begin startup fundraising, you should know the investors who would be interested in funding your business. Studying the funding patterns of the last few years will show you the sectors that investors focus on. You’ll be wasting your time if you approach individuals or institutions who’ve no interest in your category. This is another reason to seek the help of an experienced professional.

7. Asking for too much money

Some entrepreneurs are tempted to ask for way more than what they would realistically need. Part of the reason could be that they’re unable to keep their costs low. The other reason is that they feel investors won’t take them seriously if they don’t ask for too much. But investors will objectively analyse your needs and figure out your requirements.

8. Giving up too much equity

When you ask too early or for too much money, you’ll be forced to give up substantial equity in your business. While the money might make you forget about it, that equity will reveal its full value later. That’s when you’ll wish you had been more prudent about the funds and partners you needed. Remember that giving up equity can mean giving up some control of your company.

In short

Startup fundraising isn’t just about the big idea. It’s about convincing the investors of the potential of your product or service. Avoiding these mistakes will make the process faster, easier and more effective.

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