The first fundraising offer might not be the best. Photograph: PexelsThe first fundraising offer might not be the best. Photograph: Pexels

Fundraising: 5 mistakes too many founders make

04.10.2022Guy Giuffredi

Most startups trying to transform the world could profit tremendously from outside capital – at least if they went for it in the right way. So what to do, then?

1. Take the best bid.

What is the best bid? Is it the highest valuation or onboarding the most suitable investor to support your ventures? The highest valuation means that the founders suffer the lowest dilution and keep most control of their company. Raising at a high valuation can also send a signal out to the community, showing the promise of backers that believe the company is ready to take off. However, more often than not, those who are willing to pay the highest valuation are not  the value-adding investors, ideal for supporting you at this stage. Also, raising at a high valuation will set the expectations for the next round. Ideally, you can at least double the valuation at each stage,  to be sure to double the value of the company within the added runway.

2. Due Diligence - Know your audience and speak their language.

Do not reach out to every investor you have heard of. Do your homework and build up a solid lead list just like you would  when you start approaching potential customers. Reach out to investors that invest at the right stage (pre-seed, seed, Series A or later) and who invest in companies within your industry verticals. These can be business angels, VCs, including corporate VCs or other strategic investors. Ideally, you find the right consortium of investors and let them know who you are in discussion with. A little hint:

3. Don’t forget business.

We often see that founders underestimate the time and effort fundraising requires. The right time to start raising is on a high, having just achieved good results, signed new customers, won prizes etc., but fundraising often takes (much) longer than what you initially plan and requires attention from the founders and top management. Therefore, be sure not to neglect  this side of things. There is usually a double burden on the founders, but if you want to close the round successfully and build up a successful venture, plan for it as well as possible and try to be realistic. This goes along with the due diligence. Don’t waste time with the “wrong” investors.

4. Speed vs valuation.

It is great if founders are convinced of their company and have a firm idea about what the valuation should be, but especially at the early stage - speed is king. If your venture is young, every week matters, and wasting weeks or months to optimize the capital will be more costly in the long run. If you can show initial traction faster and start accelerating with additional cash and the right investor supporting you earlier, this will create much more value for you and your co-founders than running around fundraising and having to stand on the break to execute business.

5. Now and then:

When raising capital from an external investor, it is expected that you deliver on the business plan that you convinced them to invest in. This is what we investors know of your company. You have a great solution to a massive problem, a great pipeline, and need cash to fuel the business to achieve the next milestones. When we invest, we believe in you and the vision you paint in your pitch deck. Sure, the pitch deck reflects an optimistic view, but one that is achievable. After closing the round, we as investors want to be updated on how you perform on that plan and give you support and guidance where we can for you to be able to do as well as possible. Your success is inherently linked to ours, and being on the same team requires a basis of trust and a good relationship.

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