There comes a time in many an entrepreneur’s life, when it’s time to raise capital to take a business to the next level. Doing so may unlock opportunities for growth. Plus, adding a like-minded investor to your shareholder group can bring new ideas and energy to your business.
But, here’s the thing.
Raising capital from investors, especially angel investors, requires great skills. Investors are careful when committing capital to early stage ventures, especially those with considerable risks. Moreover, the skills you use to find a great hire or land a key client are often very different from those needed to bring an investor on board.
While some people will back you no matter what (thanks, Mom!!), you should always be ready to summon your A game when you’re fundraising.
Although there are plenty of posts about how to prepare for fundraising or how to increase your chances of success, it’s also important to think about what you shouldn’t do. These five mistakes can cost you a lot of money and time, and can even delay your transition from being 10% Entrepreneur to becoming a full-time founder.
It sounds like common sense, but how far along are you in your product development? Do you have a beta or minimum viable product (MVP) or are you still working from a powerpoint? If you’re already a well-known entrepreneur, a powerpoint may be enough to raise capital, but for the rest of us, a working prototype and some initial clients go a long way convincing investors that your business model is sound.
Of course, this prototype can change over time, even after the seed round is spent, but if you don’t have a compelling product when you talk to investors, you’re probably better off bootstrapping until you do.
All that glitters is not gold, but you should work on building an air of professionality around your product and brand . What happens if someone Googles you or searches for you on LinkedIn? Having a strong network of online connections can help investors to conduct due diligence on you and can enhance your credibility.
The same thing goes for your company. Building a brand for your venture – such as a high quality website, logo, etc., is now easier than ever, with an array of free/affordable tools you can use to take the DIY route, or put you in contact with professionals who can help you do it at a small cost. Recently, I highlighted some of my favorite tools and apps for entrepreneurs – try them out!
Regardless of whom you’re pitching, almost no one will give you a dime without knowing how you’ll invest the money. That means that you need a business plan, a budget, and an investment plan. This is less about pulling out a huge set of spreadsheets at every meeting (although you should have the details handy in case an investor wants to go deep into the details). Rather, it’s about being able to set out a vision for how the seed capital you raise will drive the company to th next level of its development.
If you’ve binged on Shark Tank (or its British counterpart, Dragon’s Den), you may have been shocked or even amused by some of the pitches. Beyond the obvious fact that these entrepreneurs were chosen by producers for their entertainment value, both shows present good examples of how a tightly prepared can make a huge difference. They also show how a weak pitch can sink your chances of impressing investors.
As much as you know your venture inside out, you still need to prepare, rehearse and tweak your pitch before you start asking people to fund it. Approach the entire fundraising process like a job interview – it is, after all, since the minute you take capital, you are working for your investors.
Testing your pitch will also help you to find the right balance between showing your passion for your business and presenting the hard facts. I encourage entrepreneurs to test their pitches with two or three people who are willing to provide constructive feedback. Then tweak your pitch it accordingly. Then sign up for pitch competitions or open pitch nights. It’s better to fail in front of strangers and then tighten your message before you sit in front of a venture capitalists or seed investor.
Knocking on every door available, is a waste of your effort and energy. It can also harm your chances of finding Mr./Mrs. Right.
Finding the right investors is all about doing your homework: look for investors, accelerators and contacts who know your industry and are located nearby. Then expand your search from there. While you may find capital from another part of the world or in an unexpected place, starting in your backyard will allow you to sit down, face to face, and test your pitch with people who are high quality candidates to invest.
There’s no other way to say it: raising capital is hard. But like anything else that’s worth the effort, you can improve your chances of success by planning and preparing yourself mentally for a process that will require commitment and resilience.
By avoiding these five potential errors, you will improve your chances of success and maybe even have some fun along the way. After all, this is your business and while entrepreneurship can be a slog, if you can find the fun in the challenges you encounter, then you’re going to enjoy the ride so much more.