Did you think… “Fundraising, how hard can it be”?
Well, as it turned out, really hard. Really, really hard!
It doesn’t matter if you’ve raised rounds before, or it’s your first time, 99.9% of the time its always much harder than you expect. Founders who had previously self-funded a small business have often said they understand how to sell to customers but not to investors.
A successful startup has somehow become synonymous with a well-funded startup, even if it hasn’t yet developed a proven product. This is partly due to the startup and business media headlines that go with winning a fundraising round. However, thoughtlessly pursuing investors is not the initial order of business for any startup company. Maybe it will never come to that point – and you decide to bootstrap your way to success.
Concentrating on fundraising when you are not ready, or approaching it incorrectly can easily result in a significant amount of lost time and effort, which can be stifling for a start-up and can even lead to burn-out or failure of the whole business.
For starters, convincing someone to give you a large sum of money for an unproven idea is difficult.
One of the most common mistake new startup founders make is trying to raise funds with nothing more than an idea written on a piece of paper. While this is still possible if you are well connected and have an impressive resume, it is becoming increasingly difficult. Plus many founders admit, they may not have fully understood the fundraising environment before they decided to raise capital. So we start this article with looking at the ways for a startup to raise capital, before going onto the regrets and what to keep in mind to ensure you don’t regret your raise!
There are five main ways for startups to raise capital
1. Flow of funds: You’ll be so profitable that you’ll never need to go outside for money again.
2. Major players receive private equity deals: This is where a VC Fund or Angel Investor comes in with all the cash a company could want — in exchange for equity, often board seats, and sometimes even control ownership.
3. Deals in private equity crowdfunding: From a founder’s perspective, these deals are similar to VC and Angel deals — but with fewer strings and usually a smaller amount of equity. This is the sweet spot for the majority of startups.
4. Public Markets: Whether via an IPO or a SPAC. Getting as much money as you can imagine… at the expense of a lot of control of the company.
5. Taking on debt: A venture debt loan is a loan intended for rapidly growing investor-backed startups. It is typically secured concurrently with or shortly after an equity round—and is typically used to extend runway to the next round.
But which ever way you decide to raise capital it’s important that you don’t leave with funds but also deep deep regret. All of these methods have their time and place…
Regrets from founders who have fundraising:
- Time Hunting the wrong investors
- Equity Setting the wrong valuation
- Rejections Sending the wrong pitch deck
- Stress Failing to raise any investment
- Sending your deck to investors before it is complete will jeopardise your chances.
- Not having an investor outreach strategy
- Conflicting advice from investors
- Making up facts about your company to appease investors which costs them later
- And the list goes on…
Ask yourself the following questions before fundraising for your start-up:
1) Do I really need the money?
2) Is it really worth the investment of time?
3) How big a gamble is it to raise v focusing on selling?
4) Am I actually ready or am I going in half cocked, trying to chance I’ll get lucky?
So what else do you need to bear in mind to ensure you don’t regret it later?
You won’t be happy with the results if you make any investment that sounds appealing without first incorporating it into your larger plans.
Once you’ve determined the right balance for you, you can prepare to let go of the missed opportunities or losses that come with your larger goals.
Ask any founder who has tried & failed with raising VC funds – it’s no walk in the park.
100 – 200 rejections is a lot of time spent hearing the word “No”.
Instead what could your sales conversion rate be?
How much revenue could those 100 – 200 conversations turned into instead from customers?
Don’t live in regret after rushing to raise, explore all options!
Have you tried to raise, failed and wished you’d spent the time selling in hindsight?
