Startup Funding Mistakes to Avoid

When it comes to your startup’s growth, you already know that investor funding is your biggest opportunities to get the resources you need. That makes your funding campaigns absolutely crucial to the short and long term success of your startup. There are countless paths to success, and some tried and true strategies (like getting a strategic advisor on board from the jump).

There are also some common mistakes that startup founders can find themselves making if they’re new to the startup game, or if they’re being pulled in too many directions at once.

Let’s take a look at a few common funding mistakes and how you can avoid them.

1. Lack of Preparation

Running a startup will always come with its share of unpredictable turns, but being well prepared is still something within your control. Startup founders who come from entrepreneur backgrounds are likely to think well on their feet, improvise, react decisively, and take risks—these are all great skills. However, it’s best not to rely on these skills during crucial funding campaigns.

When in doubt, over prepare. Investors can and will ask you detailed questions that require definitive and well-thought-out responses. They’re looking to understand your business from the inside out. After all, how else will they know that they’re making a savvy business decision?

Set time aside for yourself or to meet with your team and drill the basics: your company’s financials and future projections, short and long form pitches, and any collateral that you’ll be presenting or may want to send away with investors.

Make sure you know your industry too, and have your market research memorized and within easy reach. Assume that your investors are going to be well informed—potentially better informed than you are, depending on their experience. Preparation and research will demonstrate to these key connections that you know what you’re talking about, and are willing to do your homework.

Don’t assume that your way with words or charisma will take you all the way this time. Do the work, shine your shoes, and show up on time.

2. Poor Investor Fit

No matter how good your pitch or how solid your market research, talking to the wrong people won’t get you anywhere and will only end up wasting everyone’s time. Finding aligned potential investors means doing your research and some detective work. What has your lead invested in previously? Are they part of any other projects, or on the board of any associations? What is their career trajectory on LinkedIn?

These valuable clues will help you better identify your lead’s values and determine if they are a fit for your startup. Get past the basics, like an interest in tech. These surface-level facts will only get you part of the way. Remember too that great investors are sometimes hiding in plain sight. A lead who has ostensibly been interested in tech may actually be a champion for social equality and see technology as a conduit for that cause, making them a great candidate for investing in your startup.

Poorly matched investors may look like a fit, while great matches may be overlooked—both of these misses happen when there is a lack of research. If your potential investor is a great match, then pitching to them directly is really just about putting together a puzzle. You have the same values and you’re working towards the same vision—why not do it together?

3. Underestimating Market Potential

Understanding your market comes back to doing your research, and then coming back and doing it again. Noticing a theme here? That’s because as a startup founder, your job is to become in expert in everything related to your startup and its industry. Only then can you truly be a leader in your area of work.

Having a deep working understanding of your market is important for a number of reasons. For one, of course, it helps you to better target your campaigns and connect with your audiences. But when it comes to funding, knowing your market beyond the obvious use cases will demonstrate that your startup is ready for additional funding.

Investors want to know that their capital is going to make an impact, but they also want to know where and how they will make their investment back. Innovative products and services are going to have obvious applications, but there will also be other key markets and potential audiences that may not emerge without research.

Come ready to your funding meetings with all of these use cases to show your investors that you know your product inside and out, and that you have multiple ideal customers in mind, as well as a strategy for connecting with each.

4. Valuation Missteps

Accurately valuing your startup is more than a glorified guessing game. Startup founders may find themselves working more on emotion than numbers, and this is a clear and obvious red flag for potential investors. It’s easy for founders to get excited about their work and make projections based on the potential they see rather than realistic predictions.

Of course, there are only so many factors that can be included in any projection—the rest is up to uncontrollable circumstances, including politics, current events, and unexpected market shifts. However, it’s better to work with everything that you do know and have at your disposal. Work and present your findings factually, citing high quality research and reliable sources.

When it comes to valuing your company for investors, it’s best to leave emotion and grandiose promises out of it. If anything, you may want to skew to the conservative end of predictions, even if you are explicit in doing so. Investors and clients alike would rather be pleasantly than unpleasantly surprised.

Be clear, honest, and, if it’s appropriate, optimistic. However, it’s much better to get investors on board who have an accurate representation of your company than those who have been overpromised dividends and results. The latter could result in a messy and even devastating investor relationship breakdown.

5. Focusing on the Wrong Metrics

When it comes to presenting your startup to potential investors, a common mistake is focusing on the wrong metrics, or in some cases, the “good” ones. It can be tempting to focus on what appears to be working, but investors are not necessarily going to be swayed by positive metrics that don’t point to a larger context.

Knowing which metrics matter comes with experience, but in lieu of that, good research can point you in the right direction. When in doubt, you can always consult a strategic advisor who specializes in startups to determine where you should focus.

The wrong metrics may present a pretty picture, but it likely won’t be a cohesive or reliable one. Investors will be able to easily poke holes in your projections when they are built on bad metrics.

Good metrics, on the other hand, tell a solid narrative and provide a solid foundation for future projections. These are metrics that tell a full story, without avoiding problem areas. Rather, they point to key solutions to improve anything that is not currently up to par.

Make Your Next Round of Funding a Success

Knocking it out of the park during a funding round doesn’t have to be alchemy. Move forward with confidence when you work with a strategic advisor. A consult could make a real impact on your strategy, pushing your strategy to the next milestone.

An advisor with experience in startups is there to answer your questions, guide you through the process of launching a round of funding, and provide invaluable consult at all those points in the path that can be tricky for first-time founders.

Ready to get started? Book a call today: https://calendly.com/gregoryscotthenson/meet-and-greet