The Mistakes Founders Often Commit When Raising Money

Fundraising is the most challenging task for the startup founders. Although, it doesn’t seem too complex at first sight because of the thick presence of Govt. financial institutions and direct lending agencies in the UK, once the process starts realities start coming over the surface. It is also true that the majority of startup founders have adequate trade experience and knowledge of diverse sources for fundraising but still, they commit some big mistakes to suffer at large just after initiation of business. Wouldn’t you like to know the most common mistakes founders committed unknowingly? Be aware of the following mistakes to sail the ship safely through the turmoil of unexpected challenges:

1. Assuming All The Money Is Good For Your Business Need

Fundraising ties you in a relationship like the marriage. The investor gives the required cash in exchange for partial ownership of the business or profit. This relationship comes with access to so-far-missing surprising information, much-needed industry expertise, new technologies, reviews of your plans, etc. OK, all of these valuable aspects are favorable to your growth but the involvement of investors often brings in control issues, burned bridges, misaligned incentives, control over major decisions, etc. Therefore, assuming all the money is good for your business goals is not the right approach.

Solution: Determine and evaluate the funding sources for the justification in line of your business plans, freedom, mission, visions, etc.

2. Demanding Too Much Capital than the Required

A number of businesses failed just because they raised too much capital that they couldn’t use just from the start but paid the cost. There are serious consequences for using too many funds before you need to invest just because you have ‘too much’. Generally, investors invest 15–30% in start-up businesses; if you lack your own money, you need more investors; which puts more barriers to your acts, growth, and profitability. Arranging too much capital than required is a big mistake.

Solution: Be realistic about the financial needs in the line of expected profitability and risk involved. Online ‘business startup cost calculators’ are also available to guide you right but these provide just the estimation.

3. Approaching The Investors Without Having The Plan & Well Arranged Statistics

For most of the founders, raising the funds at the earliest is the prime task even if they are not completely ready with their business plans and statistics. When the founders approach any potential investor, the business plans are shared and reviewed in the circles of investors. Even the slight gap showing the lack of knowledge and experience hammers down the scope of fundraising. In addition, your proposal gets bad fame in the investors’ community; therefore, even if, you approach the investors in the future with corrections, you won’t get the rightly priced funds.

Solution: Before approaching the investors, check and evaluate your business plan, growth rate, profitability, expansion plans risks involved, etc. You should know all that you need to convince the investor or lender.

4. Not Having An Outreach Strategy For Investors

Most of the time, founders contact all the possible sources to get the funds or to get references from investors. Any investor may not be good for you in the long term because each investor has own capacity and interest to invest. Having the business proposal turned down by several investors and lending agencies, you start feeling low because of the time and effort consumed at no gain. In addition, your business plan is exposed to the wider community even before you act on it; therefore, the risk of standing out a similar type of business before yours increases.

Solution: Formulate your strategy to find, shortlist, and approach the investors according to their investing record, reputation, interest, and understanding of your business type.

5. Negotiation Against Yourself

It is a very common mistake committed by the startup founders. When the founders feel problems in raising the funds as per plans, they start negotiating with themselves. The negotiation for funds requirement comes at the cost of last-minute several changes in business plans that affect the success potential at every stage- set up, production, standards, marketing, expansion, etc.

Solution: Know how much external funds your business needs, what is fair, and how much less you can start the journey. Therefore, the experts always suggest people apply smartly for small business loans or according to their needs and capacity. Don’t let the investors take a driving seat; you know your business plan better than them.

Five Aspects Founders Often Ignore While Raising Money:

• Brand value – Expose and highlight your brand value; it strengthens the confidence of investors
• The time limit for raising money – Fix a time period to raise the target funds
• Relationship with investor – For long-term association, the relationship with the investor must be strong and aged.
• Educational training – Fundraising needs diverse skills apart from business management skills; you need to be perfect in demonstrating the business plan in the most impressive manner. The short-term fundraising and management courses are of great help.
• Research over investor – Anyone who is ready to invest in your business may not be the right person to carry the ball to the goalpost with you. You need to research the credibility of investors.

You choose the investors just as they choose you. The low valuation of your financial needs by the investors is common but don’t sell yourself too low. Don’t chase the investors; invite the investors to make them interested in your business plan.