Raising capital is one of the most significant business challenges faced by entrepreneurs. The fundraising process for technology startups is typically a slow and painful one, especially for those raising a business from infancy. In many cases, fundraising efforts detract from the time that could or should be spent growing the business. Unfortunately, many entrepreneurs fail to raise capital because of easily avoidable mistakes made when approaching and meeting with potential investors.
The three most common mistakes include:
- Not ready for prime-time.
Some entrepreneurs might have a great idea for a business, but then try to pitch investors before the concept is fully developed. Before attempting to gain investment capital, the entrepreneur should create a mockup and develop a model of the screen interfaces. They should then talk to potential customers to validate the concept and ensure that product solves a problem. Entrepreneurs also need to develop the right business model for their company. By choosing and adapting the appropriate model, they can forecast product consumption and have the capability to scale the business during the growth phase.
In addition, there’s nothing worse than going to an investor’s meeting unprepared. If you haven’t put the time and energy into developing a strong presentation and writing complete business and financial plans, you are wasting your time as well as the investors. You only get one shot, so get it right the first time.
- Targeting the wrong investor audience.
Some entrepreneurs approach the wrong investors during their startup growth stage. Different types of investors target startups at varying levels of maturity. Angel investors, for example, typically provide early-stage funding, while venture capital firms often get involved during the later stages of the operation. Before launching the fundraising process, the entrepreneur should develop a comprehensive prospective investor list for their startup growth stage. The investors should be qualified based on the following criteria: track record, market sectors, size of fund and reputation. All of the investors on the list should also be accredited.
- Mistaking an investors value contribution.
Entrepreneurs usually select investors based on valuation rather than the investor’s market knowledge, long-term financial capability and reputation. Venture capitalists provide more than just money, so they should be evaluated and selected based on their overall value contribution to the company. The following is a list of values VCs can add to a startup: expertise, board of directors, credibility, financing, network, coaching, exit, recruitment, customers and public relations and marketing efforts. Selecting the right investor can prove the difference between a company’s failure and success.
By steering clear of these mistakes, entrepreneurs can increase their chances of successfully raising capital.
An Entrepreneur in Residence at the Advanced Technology Development Center in Atlanta, Hezi Moore has more than 20 years of experience in security, virtualization, cloud infrastructure and entrepreneurial expertise. Prior to joining the Georgia Tech incubator, Moore founded Reflex Systems (Reflex Security) and led the effort to develop the industry’s first Virtual Security Appliance (VSA), which provides visibility, management and security for virtual network infrastructure.
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