47. Ten Common Startup Fundraising Mistakes and How to Avoid Them

As a Global Entrepreneur in Residence at the Founder Institute https://fi.co and chair of the selection committee for the North Bay Angels https://www.northbayangels.com/ I see heaps of pitches. Unfortunately, the same few fundraising mistakes doom most of their efforts. I want to share with you my list of the ten most common fundraising mistakes founders make and how you can avoid them.

1 – Only Looking at Equity

Just because you can get angel or VC investment does not mean that you should. Some other sources of growth capital don't require selling part of your business.

2 – Going in Cold

At the North Bay Angels, companies introduced by a member receive funding several times as often as previously unknown startups. You are at a massive disadvantage if your first interaction with an investor is to put your hand out asking for money.

3 – Fundraising too Early

A large fraction of companies applying to the North Bay Angels are not ready for angel investment. Unfortunately, you typically only get one bite at that apple.

4 – Missing the What and Why

I often reach the end of a pitch, having heard all kinds of information but with no idea what the company does or why. I need to be able to picture your business in action and your users interacting with the solution.

5 – Failing to Understand Your Audience

You know your business far too well, or at least I hope you do. You no longer remember what was obvious about your market space and what you learned while working on your business. This leads founders, particularly technical founders, to assume that their audience of investors understands these things too. I assure you that we do not.

6 – Weak Communications

In a perfect world, investors would judge your company solely on the quality of your idea, plan, and execution. Unfortunately, we don't live in that world. Investors are unlikely to see past an ugly surface to the gold within.

7 – Hiding Weaknesses

Many startups have some skeletons in the closet. If it looks like you have been trying to keep these issues hidden, you are violating our trust. And trust is everything in early-stage investing.

8 – Failing to Make Commitments

Often founders are vague about timelines and milestones. I want to know that after this investment, you will release a new version of the product with the following enhancements, grow to some number of customers, and generate a specific amount of revenue. If you can show a history of making and keeping commitments, even better.

9 – Raising too Much (or too Little) Capital

Sometimes funding applications draw an immediate rejection because they are raising too much money or too little.

10 – Failing to Follow-up

Finally, follow-up after your introduction, pitch, and any other interaction. Most investors are busy and easily distracted. If you wait a few days to get back to us or set the next meeting following a pitch, I am likely to have forgotten most of what you said and be off chasing some new shiny object.

Conclusion

Fundraising is hard, time-consuming work. Even if you do everything right, the odds of any angel or VC investing in your company are low. But, if you make these unforced errors, the odds quickly drop to zero. You are taking a huge risk as an entrepreneur. Make sure you give yourself the best possible chance of success.