As a new entrepreneur, it is easy to trip during the fundraising process since you’ve not done it before. It’s even easier to make startup funding mistakes as a first-time founder with a revolutionary product idea. So, months have gone by and you have been hustling with your team to turn your idea into a product. You’ve done your market research and have the perfect target customer reminder. Finally, you reach the point where you are ready to bring your vision to life.
Obsessing over percentages
Entrepreneurs are too focused on getting the maximum percentage of ownership of their companies. It is understandable. You don’t want to give away too much of the company you spend sleepless nights building, but focusing on dilution is a big mistake. It is better to own a slightly less percentage in exchange for better terms or better partners.
Even if you own 90% of a company you still might not have control of the board or voting rights depending on how it is structured. You could lose control of your company. Choosing investors based on dilution alone is similar to choosing a girlfriend or boyfriend who lives in a better neighborhood. You are choosing a partner not choosing where to live. You should pick someone you get along with and value and respect. Investors are not just ATM machines they are also a part of your company.
Not doing your due diligence on VCs
A lot of entrepreneurs are carried away by VCs with fancy resumes and profiles. This is one of the biggest startup funding mistakes. Founders will discover that VCs have invested in a very successful company and take their money without a second thought. Just because someone invested in a successful company does not mean they have superior financial acumen. They just might have been in the right place at the right time. This doesn’t mean they are right for you and your company. This is why you must do your research.
Ask every potential investor if you can speak to some of their portfolio companies. That’s where you can do your due diligence. You get to know about their reputation.
Not paying enough attention to evaluation
Most startup founders get their companies off the ground through investment money from friends and family. There could be disadvantages to getting money from friends and family which could be a startup funding mistake. For one thing, you are mixing business with personal life. It is often the case that starts off our friends and family investors large equity at an unreasonable valuation. This makes it difficult for angel investors to come in later on. Too much focus on fundraising most entrepreneurs play too much emphasis on fundraising.
It’s true that certain businesses need the huge capital of France. This is not the case with most businesses. Many businesses were able to become a massive success without investing at all. Getting your company off the ground takes a combination of skill and look.
Therefore, be patient and focus on building a solid business first. But when it comes to seeking investors do your due diligence.