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Startup Funding Mistakes and How to Avoid Them

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Focusing in the wrong direction can result in Lost time and effort. This can have a crippling effect on new businesses. The best way to learn is from the mistakes of others. Avoid the common fundraising pitfalls that startups have fallen into in the past.

Thinking you need an investor when you don’t

Most new businesses are bootstrapped. This happens for a number of reasons. First, it isn’t easy to convince someone to give you a substantial amount for an idea that is not yet tested. Again, most new businesses are not capital-intensive. This is particularly true in the service-based industry. So, it is logical for the founders to do away with having to give a percentage of their earnings in exchange for a sum of money that they could easily raise in other ways.

Trying to raise money too early

One of the most common mistakes that new startup founders make is to try to raise funds with an idea only written on a sheet of paper and nothing more. They have nothing to show as proof of market viability. If you are well connected and you’ve been to ivy League schools you may be able to pull this off. But it is becoming more difficult nowadays. More investors rely less on the ability of the founders to predict the future and more on empirical evidence.

Understanding the fundraising environment

The first two rounds of fundraising give you capital to find proof of concept. It helps you develop your product and find your first customers so that you can be sure you’re on the right track to market fit. Proceed and seed round issues are usually financed by Angel investors accelerators and early-stage funds. In the venture capital stage, you get the growth capital so that you can scale up operations fast.

So, it’s important to know who to pitch at different stages for instance pitching late-stage investors before your business is profitable is a waste of time for both parties. Investing in a start-up involves trust in the founder. As a result, the best way to effectively raise funds is to involve yourself in your local startup community. Within your local community, you would find people who can vouch for you and introduce you to investors. Having said this, you can also look for opportunities such as incubators and accelerators.

Failing to communicate their ideas clearly

After you have decided that you need capital and you have a chance to get it, the next thing is to communicate your idea clearly. The US consulate as possible about your future vision for the future. This requires you to understand your audience. Find out if the company invests in your type of startup. Then communicate clearly what your company is set out to achieve. Also, support your claims with empirical evidence. Fundraising is not easy because the wrong businesses are trying to chase investment at inappropriate times. If you can ensure that you are not making this mistake then with consistency on your part you should be able to attract investor funding.

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