The 10 Most Common Mistakes Entrepreneurs Make when Raising Venture Capital
The 10 Most Common Mistakes
Entrepreneurs Make when Raising
Last year, venture capital firms invested approximately $48.3 billion in
a total of 4,356 deals.
This represented a 61% increase in total investment and a 4%
increase in deal volume.
Historically, institutional capital
(Venture capital firms, private
equity, and hedge funds) have been
a popular source of capital for both
early stage and mature companies
looking to raise money needed for
We regularly hear about successful
deals funded by these firms.
When in reality the overwhelming
majority of opportunities presented
to VC’s are rejected.
In the following slides, you will learn about the top 10 mistakes entrepreneurs make
while reaching out to prospective investors so when your time comes, your pitch will
be on point.
TOP 10 MISTAKES
Many entrepreneurs want to raise
capital from the investor offering the
most money at the highest valuation.
Pick an individual/institution that
shares your vision for the opportunity
and will provide value beyond just an
injection of capital.
#1 | Smart vs. Dumb Capital
Blowing out your equity positions in the company in order
to raise a large sum of money. This can lead to a loss in
control of the business, minority ownership, and potentially
lead to issues in raising subsequent rounds of money.
Raise enough capital to support
growth but allow you to remain in
control of the business.
#2 | Not Preserving Equity
Asking for either too much or too little. The
cost of capital for beginning businesses is
extremely high due to the risk for the investor.
Keep this in mind when honing in on a number
for the initial ask.
Raise whatever large costs you foresee
in the horizon (Capital expenditures +
Intangible assets), if any, plus three
months worth of operating expenses.
#3 | Asking for the Wrong Amount
Valuing your company at $500 million
when it does $500k in annual revenue.
This will be a red flag for investors.
A valuation driven by aggressive, yet obtainable
projections based on historical performance of the
company and similar ones in your industry. It is
acceptable though to slightly overvalue your
business when you begin the negation stage of the
due diligence process.
#4 | Unrealistic Valuation
#5 | Limiting the Process to Venture Capital
Putting all your eggs in one
Reach out to multiple resources for
funds. Venture capital is not always the
most appropriate fit for companies
looking to raise money. Explore other
opportunities such as debt financing
partners, crowdfunding campaigns,
strategic players in the sector, and
other creative methods to source
#6 | Being Unprepared
Not having fundraising
materials and a solidified pitch.
Getting a meeting with a Partner at a
Venture Capital firm is a big deal. They
have vetted you and your opportunity,
and them taking time to hear more
about it validates your business so, be
prepared with a bulletproof pitch ready
with a block at the end of the
call/meeting for a Q&A session.
#7 | Excessive Number of Team Members on Initial Calls
Overwhelming the investor on
the first few calls.
Limiting the number of management
team members on initial
calls/meetings. The CEO (to field
general business questions), CFO
(financial components), and CTO
(technical guru if applicable) should be
suitable for the introductory
Distributing sizable portions of the
investment towards salaries and/or
travel and entertainment.
Have a definitive answer to where the capital
will be allocated towards. Ideally, each
segment should be directly related to helping
the business grow such as marketing or
research and development.
#8 | Not Allocating the Funds Correctly
Being unaware of the length fundraising can
take. By the time you find a suitable investor,
make introductions, and the investor conducts
their due diligence methodology, the capital
raising process can take 3-6 months.
Making sure you have the financial support to
continue growing the business in the meantime.
#9 | Misjudging Time to Raise Capital
Going to market without proof of concept.
Having an idea is great, but the business isn’t
worth anything without substantial
users/customers, IP, revenue, or brand
Gaining traction in the market prior to raising
money. This will drive down the risk associated
with the investment and increase valuation.
#10 | Not Achieving Milestones First
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