Don’t Make These Common Mistakes When Raising Business Funding
When raising your first round of capital, many entrepreneurs make common mistakes. To help you become a savvy founder (and avoid these mistakes), we asked nine successful entrepreneurs from the Young Entrepreneur Council to talk about the mistakes they’d made in the past and give advice on how others can avoid the same.
1. Setting too high a valuation
Setting too high a valuation during a funding round can lead to failure and make investor relations difficult.
2. Overestimating future revenue
It’s easy to overestimate future revenue based on past performance. However, it’s important to analyze this number from every angle and consider all variables.
3. Raising too early or too late
Funding a startup too early or too late is detrimental. Timing is crucial for valuation, market, and team. Evaluate the best time to raise money and give yourself six to eight months for each round.
4. Not having legal counsel
Not hiring an attorney when raising the first round can lead to mistakes. Founders should pay attention to the liquidation preference in the term sheet and consider seeking legal counsel.
5. Not having a strong second option
Having only one funding option puts you at a disadvantage. It’s critical to have alternatives or competition to get better terms.
6. Trying to optimize for everything
When raising funds, focus on what you’re optimizing for. Choose two out of the four vectors: speed of raise, certainty of raise, valuation/terms, and quality of investors.
7. Not talking to the decision maker
Avoid wasting time by ensuring you speak to the decision maker during the fundraising process. Building relationships with other firms is crucial.
8. Not doing due diligence
It’s important to research the historic investments of donors and investors. Lack of upfront research can hurt fundraising efforts. Allocate time for due diligence to manage expectations.
9. Not keeping it simple
Potential investors may not be experts in your industry. Keep pitches and presentations simple, highlighting how your idea solves problems with a clear solution and using straightforward language.
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I’m Andrew Brooks, a seasoned finance consultant from the USA and the mind behind phonenumber247.com.
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