Hey dreamers & founders,
Did you know, investors turn 91% of the startups that pitch to them. To make it through, you have to present them with the right information in the right way. Interviews with investors reveal founders make the same mistakes again and again. I found these 8 major mistakes that startups make when fundraising and how to avoid them from Founders Institute.
1. Weak communication
Fundraising is an incredibly competitive business. Your enthusiasm and energy need to shine through in every interaction. Use stories to convey information. Steve Jobs was a master of this. In the launch for Macbook Air, he could have talked about its dimensions, but instead, he described how it fitted in an envelope.
Aesthetics also matter. You, your deck, your handouts, your website, all need to look good.
2. Fundraising too early
Investors know that investing in early-stage startups is risky, but unnecessary risk is unacceptable. Make sure you have examined all the key assumptions related to your business model. Do your unit economics work at scale? Will customers change behaviors to adopt your solution? Can you have a reasonable CAC?
3. Raising too much (or too little) capital
If you are raising a big round, but the valuation is modest, investors would worry that you will get so diluted that you lose motivation.
Asking for a small investment can make investors worry you won't get the startup to the next milestone. This often happens if a founder lacks confidence or they were rejected when asking for more early, so they drop the price to make the sale easier. But this only makes them look inexperienced and unready.
4. Failing to Follow-up
Follow-up after your introduction, pitch, and any other interaction. Most investors are busy and easily distracted. If possible, set up your next meeting during the current one. And then keep at it. If investors will let you, get everyone on a regular update mailing list. In those updates, make commitments and show that you are hitting them.
5. Missing the “what”, “why”, and specific examples in their pitch
Investors often reach the end of a pitch, having heard all kinds of information, but with noidea what the startup actually does or why. Give some specific examples of the problem. Saying that you improve process efficiencies does not paint a clear picture at all. Tell investors about what users had to do before, that they don't need to do after adopting your solution.
6. Hiding Weaknesses
Many startups have some skeletons in their closet. Past co-founder issues, down rounds, or pivots. If it looks like you have been trying to keep these issues hidden, you are violating investor's trust. And trust is everything in early-stage investing.
7. Failing to make commitments.
Often founders are vague about timelines and milestones. Their "use of funds" slide talks about what they will spend money on, but not what that will deliver. Clearly articulate commitments and milestones give confidence that you thought through your strategy and understand how to go forward towards your long-term goals.
8. Failing to understand the audience
As a founder, you care about running the startup. Customers care about solving a problem. Investors care about your startup thriving and returning many times their investment.
Even if you do everything right, the odds of getting angels and VCs to invest are always slim. But, make sure to give yourself the best possible chance of success!
Any mistakes or no-goes you would add to the list? 💬