Fundraising is a repeated and often crucial component of a business’s life cycle. Companies need to raise money to develop products, marketing campaigns, scale operations, sometimes just for survival.
Many entrepreneurs struggle to find investors with the saturation of demand for money being much higher than the supply. Getting an opportunity to pitch to an investor is a golden ticket but many entrepreneurs waste it along the process.
Here are some of the most common fundraising pitfalls that can save you time, money and worries if you avoid them.
1. Lack of planning
Since fundraising is not part of the core business activities, entrepreneurs run around frantically grasping on to any tips or tricks from the internet or their friends can offer to get them investors. However, like every project, planning is necessary to take intentional and impactful steps to achieve goals.
Do not run the course alone, get your team behind you, use their expertise and networks to join you on this new phase the company is going through. Build a strong plan of how you want to get yourself in front of an investor, how you will conduct your pitch, how to finalise the deal and how you will translate the plans for the money into actions.
2. Starting late
Cash flow is at the heart of businesses. Give yourself ample time to find investors, make your pitch and close the deal. Fundraising is not a short process and starting late does not help to reduce the stress that comes from rejections.
Build your network of investors early. Go for events, participate in pitching competitions, do everything you can to get your name known by investors, even before you are looking for funds. You can make use of this time to get feedback on your pitch, what is good and what is lacking. Improve your pitch to perfection so that when the time comes, you are more than ready to reach out to the investors who know you and give them a pitch that stands out.
Network with other founders as well. Not only can they share their experience with you, those with suitable investors back them can introduce you to their investors. Think of it as your referral program for fundraising. Investors would be much more likely to entertain recommendations from founders in their investment portfolio than choose to hear your pitch from the sea of pitches screaming for attention in the market.
These relationships cannot be built in a short time span, nor can they be meaningful and genuine if they are built only when you are raising funds. Go out there and start networking.
3. Being money driven, not vision driven
Some entrepreneurs make the mistake of settling for any investor, as long as they can provide the money. Those raising capital for survival or to fend of an impending competitor tend to fall prey to this mistake.
Once investors own a stake in the company, regardless through debt or equity, they have a say in the business plans. Having investors that do not share the vision, mission and goals with you could mean additional pressure to pivot the company, rush an initial public offering (IPO) and do a hostile takeover etc.
Conversely, securing an investor that shares your vision, has past experience with something similar and possesses additional resources to get your company where you envision it is invaluable. These investors will support the company through struggles instead of adding new burdens. Remember your vision when you are raising money and find the suitable investment partners who can get you there.
4. Blowing the opportunity
If you have not made the first three pitfalls, chances are that you are getting ready for a pitch to an investor that you are pretty certain can help you in the long run.
Despite this chance of a lifetime, entrepreneurs squander them through inflated valuations, poor pitch decks and unconvincing pitches. Your pitch does not just reflect your business, it reflects you as an entrepreneur. It displays your respect for the investor, your work ethics and your ability to sell your product.
Investors often look at the entrepreneur to make the business a success more than the business itself. Portray yourself as someone that is trustable, that will fight for the investors and has the capability to do things that you state in your pitch. Show them your past reliability through your numbers and experiences, your current stage and its value today, your actionable plans with the money to achieve the desirable returns in the future.
5. Closing the deal poorly
An agreement to invest at the end of a pitch is not the end of the process. A signed term sheet marks the end of the specific round. However, a term sheet is extremely detailed and can throw off unsuspecting entrepreneurs into binding contracts which place them in risky situations such as hostile takeovers.
Understand the nuances of a term sheet and analyse all the contracts you sign thoroughly. Negotiate with the investor on terms that were not part of the verbal agreement and see how you can position yourself and the investor in a manner that is mutually beneficial to both parties.
Complete the process swiftly as investors are still able to rescind their verbal agreements as long as a term sheet has not been signed. Dragging your feet also reflects poorly on you and shows that the company has no immediate plans for the money to be utilised.
Fundraising is often an operationally and emotionally challenging process for an entrepreneur and the business. However, like every other business function, creating goals, plans and cultures is the imperative to secure supportive and experienced investors to help attain the vision of the company.
Start networking with others in the ecosystem today and build your knowledge about fundraising concurrently. And when it is your turn, you will not be found in a ditch from any of these pitfalls.
About BlackStorm Consulting
BlackStorm Consulting is a boutique growth consultancy firm that specialises in corporate strategy, profit management and investment management. We mainly serve clients in four sectors: FinTech, Gaming, Technology, Media and Telecommunications (TMT), and manufacturing.
Our clients and connections are internationally present and range from small and medium sized businesses, MNCs, to government agencies.