The act of starting up starts with an idea. A desire to disrupt the status quo and potentially change the world around us.
Every startup, thus, is a rebellion against an established order and to succeed, it needs backers in the form of early investors who believe in the vision of the founders and put in capital to get things off the ground.
As first-time founders ourselves, we know how daunting it can be, and that it is easy to make mistakes that cost us time and money. This article highlights some of those mistakes, and what you can do to avoid them the next time you raise funds for your next big idea.
Find those who invest in your long-term vision
As a founder, it's easy to get caught up in the allure of big names and substantial funding when raising capital.
However, it's crucial to evaluate the motivations of potential investors and determine whether they are truly committed to supporting you and your business in the long-term.
This is especially important when considering early investors and the composition of your cap table.
These individuals and institutions are entrusting you with their money, and they will hold you accountable. Therefore, it's crucial to ensure that there is alignment in vision, goals and problem-solving styles to avoid potential conflicts down the road.
Don't just focus on the capital being offered, but rather consider the additional value that an investor is bringing to the table. Ask yourself if they can provide valuable expertise, introductions to key industry players, other resources that will support your growth and success and if they’re known to be supportive or dismissive when things get difficult.
Starting up is incredibly hard and having the right set of investors to turn to can make all the difference in the world. So, be thoughtful and intentional when choosing the partners that will join you on your journey
Work bloody hard on that pitch
In your mind, you could be sitting on the most disruptive business idea of the 21st century, but until you put it down and communicate, none of it is going to matter.
This doesn’t mean hiring an agency to create a 100-page pitch deck. This means sitting down, and getting thoughts to paper. You are telling a story to the other person, and you need them to believe in it by the time you end.
It may feel obvious but several founders get the basics wrong.
Ask yourself some questions when preparing the pitch: what is the market size, why does this problem need solving now, who am I, what drives the market that requires your solution? When you are pitching, especially to institutional investors, remember that they want you to be solving a very difficult problem for a very large section of people. If your idea doesn’t scale, it is not going to generate those outsized returns for them.
Dig into the problem you are trying to solve and get cold, hard facts backed by data. Any pitch that doesn’t have current and past numbers and future projections is not going to leave a lasting impression. While you do that, cut the jargons. You want to inspire, not confuse. Be clear, concise and accurate.
And remember: you need to be prepared for any question and counter question that will be thrown at you. Know where things can go wrong, and be prepared to answer how you are going to solve for them when they do.
Finally, keep your audience in mind when preparing the pitch. How you sell your product to your customers can be drastically different from how you sell your business idea to an investor.
Know what you need and how much
Let’s assume the investors you wanted have decided to give you more than what you expected. Do you know where you are going to deploy these funds?
Even without a detailed 12-month runway, you should have a general idea of how much capital will be allocated to each area of your business over time. Without proper planning, you could end up with too much money and dilute a significant portion of your equity.
Remember, more funding doesn't always equate to success. In startups, founder share dilution is a constant reality. Don't let too much dilution leave you without enough skin in the game to keep pushing forward.
Plan wisely.