Fundraising is a double-edged sword. Turn it the right way, and the cut is clean. Cut in the wrong direction, and it can pierce deeply and cause irreparable harm. Knowing what to do and avoid therefore provides valuable guidance for founders raising or planning to raise capital from investors.
In this article, Twenty discusses fundraising mistakes to avoid worldwide in general and in Vietnam in particular.
Over-optimizing processes
Many founders use tricks to make their startups look perfect and raise their valuations to please investors and attract more funding. Yet it is easy to see that a startup already strong on the inside can secure capital without exaggeration. Founders should therefore not focus only on fundraising, but get things right from the outset by making their companies more attractive.
• Identify the investors you want to speak with, then contact them. If you want to approach several investors rather than just one, contact them in parallel instead of waiting for the first to decline before approaching the second.
• Explain why your startup is worth the money. Persuade investors through your company vision, product, current business figures, future goals, market, and competitors. These points help them understand why you will win and what your lasting competitive advantage is. Also introduce your team and explain how you use it and your business model to generate profit.
• Create competition among investors, and you will find it easier to choose the best match for your startup. One key to successful fundraising is “I will explain it more clearly at our next meeting.”.
You can also use business tactics such as telling investor A that investors B, C, and D… are interested in you, or that your time is limited, making this hour-long meeting extremely valuable… But founders must use these tactics carefully. If handled poorly, it is no different from admitting that you are using tricks to attract investors. Therefore, if your company truly has potential, you do not need them.
Also, watch for signs of whether the investor can continue with you and which areas of your company should change. Investors rarely speak directly, so founders should pay attention to avoid offending them.
Valuing a startup too highly
Startups aim to secure good investors and reasonable terms without spending too much time fundraising. The biggest problem therefore comes from chasing high valuations. In reality, investors, especially venture capitalists, always encourage startups to value themselves logically. Do not set the valuation too high, or investors will ignore you from the outset.
Moreover, you will face an even bigger problem: if you set it too high, you will never be able to lower it again. With each funding round, your company’s valuation must rise above the previous round, and in some cases it grows increasingly far above its real value. Eventually, boom—your startup is gone.
Failing to create a competitive environment
As mentioned above, a competitive environment greatly helps fundraising. The hardest challenge for a founder is securing the first offer from an investor. Once you have one offer, other investors will quickly follow to avoid missing a good opportunity. This is the leverage effect. But finding that first investor is what truly gives founders headaches.
The best way to find those most likely to invest in your startup is to focus on people who love what you and your startup are doing and act before all other investors. Put them at the top of your shortlist.
Being Arrogant, Haughty, and Disrespectful
The first meeting establishes the foundation for the future relationship, and founders tend to become distant from investors, gradually developing a disrespectful attitude. Therefore, always maintain respect—for example, do not ask investors to decide immediately after the first meeting.
Remember that investors are people too. They want to feel respected and comfortable. If you tell investors that you truly enjoy working with them, they will be more inclined toward you.
Unable to hear a refusal
Investors generally do not want to kill a startup, so when they decline to invest, they do so tactfully. Founders, however, often dislike hearing rejection and keep pressing investors, wasting both parties’ time while seemingly changing nothing. Moving on to another investor is therefore a much wiser choice.
No plan
Many founders run into trouble trying to follow a perfect template and end up resembling their competitors.
The best way to plan is to focus on the parts you truly enjoy. That will excite investors. Communicating your passion to investors is extremely important because it substantiates what you tell them, and no one can fake it.
A founder's passion is expressed through the stories you tell: how you decided to work on this idea, why it matters to you and society, and how you met your co-founder.
Founders must also understand that smart investors seek impressive business figures. So do not focus on silly things like discussing your company's merger potential, because it negates the startup's future growth potential.
Lack of clear goals
If you lack a strong belief in what you are doing and agree with most investor proposals, you risk lacking a clear vision. Listen to what intelligent people say, but be certain about what you truly believe. A founder with a clear vision can explain what they do and why it matters concisely and impressively to investors. That vision also conveys a big idea worth exploring further. Show them something they have never heard before, and do not say too much about it, so they remain curious and arrange further meetings.
Unclear figures
Today's successful founders around the world often ask themselves 2 questions in the earliest stage:
1. Do My Employees Know What They Must Do?
2. Can they do it?
The answer to question 2 reveals whether your employees care about the business. The best companies have teams that understand the meaning of the business figures in reports. Investors also often ask your employees about these figures to make sure the numbers you provide reflect reality.
May founders find their path to successful fundraising.
Source: Twenty.vn
Chương trình liên quan tại YUP Education: X-FundUp – khóa học gọi vốn «Giải Mã Cơ Chế Vốn» · The Journey – lộ trình phát triển doanh nhân
