Written By: Janine Kick
Raising capital is not for the faint of heart. Mistakes can be fatal for a startup. Below are the Seven Deadly Sins of Fundraising I witness firsthand time and time again. Hopefully, this brings you one step closer to prosperity in the funded holy land!
Sloth: Go all in.
No investor (or anyone for that matter) likes a half-baked idea. If you’ve raised capital before, you know that fundraising is your first, second, and third priority. It takes your undivided attention to raise successfully. ‘Side-project fundraises’ litter the cemeteries of start-up land. Good raises are focused and have a clear timeline. If you are lucky enough to have a co-founder, at least one of you should be committed full-time to the raise. If you are a solo founder, brace for impact as you now have two full-time jobs.
Lust: Pick the right reason and season.
If you’re raising because you think money is going to solve your operational problems, think again. You have to think of your startup in terms of bottlenecks. If you’ve proven your business model, cash might become the only scarce resource keeping you from scaling. That’s a good time to raise. Money alone cannot solve your problems and, keep in mind, it accelerates everything – the good and the bad. Pick the right time and right reason to raise.
Wrath: Don’t get angry.
I was recently told point-blank by an investor that venture capital is a business of no. Meaning that they’re looking for a reason to say ‘no’ to you and your startup rather than ‘yes’. 95% of the investors you speak with will say no. Now our brains know it’s not personal, but it doesn’t always feel that way! Prepare for a lot of rejection and remember you only need one (good) yes!
Pride: Ask for help.
Fundraises are among the most critical phases in a start-up. They can make or break a company. However, first-time founders are not trained in the process. That’s not a great position to be in against highly experienced investors. If you find yourself Googling phrases like, “participating preferred stock,” you probably shouldn’t raise alone. Swallow your pride and assemble a support team! I know a few people who could help… 🙂
Greed: Optimize for certainty.
Ambition is good, but greed isn’t. You know the saying, “the higher you go, the thinner the air”? It’s true for valuations. Investors are dropping out of rounds due to valuations skyrocketing which in turn leaves founders raising less than expected and drastically altering plans. It’s better to optimize for certainty, speed, and favorable terms over valuation (within reason, of course).
Gluttony: Don’t overdo it.
When it comes to your cap table, the shorter the better. Investor relations can become a complex, cumbersome responsibility. If your cap table starts to look like the Yellow Pages, beware. It’s necessary to have investors but ultimately, you want to bring on as few as possible.
Envy: Focus on you.
Stop comparing your round with others. It doesn’t matter. That unimpressive guy from business school who doesn’t even have a website raised a $20M seed? Who cares? We live in a crazy time where unicorns are popping up everywhere. You will always find a bigger round. Don’t fall into the trap of comparison.
We’ve all been guilty of at least a few of these ‘deadly sins’. It’s difficult not to get lost in the daunting task of raising venture capital. Yet, with any luck, now that you know where the pitfalls are you can avoid them.
Kerosene Ventures – Helping Great Founders Raise Capital