#WisdomWednesday: 5 fundraising no-no’s to avoid
You’ve got big plans this year, and you’ll also need someone to fund them. As convinced as we are that your startup is fantastic, we feel the need to warn you of some common mistakes in fundraising that could stand in the way of winning over investors. So this #WisdomWednesday we’re sharing the top no-no’s that will turn investors off, and how to avoid them:
#1 Not doing your homework on the competition
Every startup has competition, and not just in their immediate sector. Compare it with a car brand: the brand not only competes with other car brands, but also with bicycle brands for example, since some choose other means of transport. So take the time to think about all the choices the customer has out there to meet certain needs besides your product or service, and do your due diligence. Research both direct and indirect competitors to get insights into what they offer, how they are valuated, how much capital they’ve raised and how they are responding to changes in the industry.
There’s nothing that turns investors off more than when startups clearly don’t know their place in the market. It’s an essential part of understanding the industry you’re competing in. If you’re not aware of major competitors it’s a clear sign that you haven’t done your research. Even if you think you don’t have any competitors because your idea is so new, you may still have indirect competitors that are meeting some of the same needs you want to address. Otherwise you’re going to have to explain why you believe there is a market. Having stiff competition is fine: it’s about being able to make the case that you can meet those needs better. No need to slam your rivals during your pitch: put your advantage in positive terms and focus on how you’re going to differentiate yourself.
#2 Not investing enough in your pitch deck
Another thing that has investors pulling out their hair is when startups invest more in burritos than they do in their pitch decks. How can you expect to make billions when you won’t invest in a great deck? It might not be easy, but investing enough time and money in your pitch deck pays off big time. Start with some great templates and put in the time to make sure your deck is prepped to impress.
Be careful though: that doesn’t mean that your pitch deck should be overly complex. It’s easy to forget that most investors aren’t as familiar with your industry or product type as you are. Stick with a maximum of 20 slides on the problem, market, product, team and financials and the amount you need to raise. Focus on the problem you are trying to solve and how you are solving it, and emphasise why you are well-positioned to do it. Droning on about technical aspects will lead to wandering minds, and your main message is bound to get lost. Especially during in-person presentations, keep it streamlined and be ready to elaborate or answer specific questions as they come up. Save the nitty-gritty details for your follow-up communications.
#3 Making it all about the money
Another danger sign for investors are entrepreneurs who are hungry for any money they can get, regardless of the source. Of course it’s good to be ambitious about meeting your fundraising goals. It’s also totally fine to want to profit from your ingenuity. But if you come across as too desperate for your next infusion of cash without spending too much time worrying about who it’s coming from or your long-term strategy, that’s a problem.
Investors want to know you’re committed. That means having a vision for your next rounds of fundraising and how you will use them, backup plans for if this investment doesn’t come through, and caring about who your financial partners are and how they impact your vision. It should be clear that the right partnerships are more important than having immediate funds. The care you take in your fundraising strategy and partnerships will surely help you achieve more in the long run, which is what investors are counting on. Which brings us to our next point.
#4 Not selling yourself and your people
Investors put their money on people, not on a product or service. They are banking on YOU. Of course the idea should be great and the numbers should add up, but founders make or break it. There will be a lot of changes and adjustments on the road to success, and investors are looking for someone they can count on to stick with it. They want to know why you are the right person to bring this idea to life, and they want to connect with you on a personal level. Investing is a relationship, so it’s important for investors to get a feel for who you are and what drives you. This creates trust, which is really what investment, like any other relationship, is all about.
Of course you can’t ride the road to success alone. Building a strong company depends on a great team. So just as you need to sell yourself, sell your team and why you have the best people on board to realise your vision. Show them what each team member brings to the table, not just with a list of skills and qualifications but as a whole person. That way investors will not only know what they’re investing in, but also who they are investing in.
#5 Not following up
One of the biggest no-no’s of all, not following up can be fatal to the fundraising process. It shows a lack of initiative and persistence, which are kind of essential things a startup needs to have. So don’t delay: after the meeting, follow up via email and include:
· Your pitch deck
· Answers to any outstanding questions
· Any other material the investor requested
This is not a dating situation, so don’t play hard to get: get these to your potential investors as soon as you possibly can. They may not respond quickly in kind, and while you should respect the fact that they’re busy and not harass them, it is up to you to keep following up. Give them a few days to digest your email and then keep them posted weekly about how your round is filling up and who else has signed on as well as any wins such as launches or new customers. If they end up turning you down but want to keep in touch, actively keep them updated: who knows what the future may bring?
Now you know it, make sure you also show it! For more advice on how to wow investors, make sure you consult with one of our greatmentors!