Congratulations on starting your business. If your vision is to massively scale your company, chances are you're going to need to get good at fundraising quickly.
I'm a venture-backed startup founder and angel investor in Silicon Valley. I see first-time founders making the same fundraising mistakes over and over again, and frankly I myself have been there and done that. So I proactively surrounded myself with successful fundraisers, and I'm going to share what I learned the hard way so you get an early start! Every founder must avoid these mistakes:
1. Pitching to the wrong investors
This is so very basic and yet most first-time founders make this mistake. If you're selling bacon, will you sell to vegetarians? Of course not. That would be a total waste of their and your time.
Similarly, if you run a seed-stage enterprise startup, do not pitch to growth-stage consumer-tech VCs. I recommend using tools such as Crunchbase and Angel List to look up VCs, angels, and family offices focused on your space (e.g., health care, HR tech, e-commerce) and stage (pre-seed, seed, Series A, etc.).
2. Starting investor outreach when you're raising
Instead, you want to get an early start and meet investors before you want their money. Remember that these investors are humans just like you and me, and ultimately they invest in founders they like and believe in. Let them get to know you, let them give you input on your vision, let them see you grow over time and feel a part of your growth journey.
3. Not keeping your current investors posted
I learned this from my mentor Viral Bajaria (CTO at 6Sense; raised $63 million). Every single one of your existing investors knows other investors. They already believe in you. If you don't leverage these existing champions to advocate for you, you're leaving so much behind on the table.
I recommend sending quarterly email updates to your investors, potential investors, advisers, and mentors recapping your wins and asks. Let them feel invested in your journey. You'll be amazed by how many intros you get to raise, sell, and hire in the future.
Pro tip: In these email updates, highlight your team members' wins. If you're running a one-person show, then you're in trouble, my friend!
4. Letting investors drag you
As one of my investors, Betty Jin, well put it, "Investors are very good at giving you a false impression that they're interested when they're really not. Don't let them waste your time." If an investor is highly interested, they'll move fast. If they've made you wait for a while, they're most likely not going to write a check.
I recommend asking them about their decision making process and communicating your timeline in your very first pitch meeting. You could politely say, "I'll need to know by the following Tuesday if you're in. Does this timeline work for you?"
5. Not investing in your founder network
I learned this tip from Mandela Schumacher-Hodge Dixon at Founder Gym, and I'm forever grateful for it. To fundraise, you need to invest in building out not only your investor networks but also your founder networks. If I invest in a founder, I clearly think highly of them. If they introduce me to another founder, I'll take a meeting with them or at the very least, review their deck. The best intro you can get to an investor is through one of their portfolio founders.
You don't want to approach this like its a transaction. You want to build your founder network before you need these intros from them. Even if they're ahead of you in the startup game, you can still create value for them--if they're hiring, you can refer your friends, or you can share their social media to further their brand awareness. Lastly, don't forget to pay it forward.
6. Taking investor feedback too seriously
A motto I've started to live by is '"Reject feedback." Now, context is super important, so please take this with a grain of salt. You certainly want to keep learning from market signals and customer feedback. What I specifically mean is that most investors won't get what you're doing, so don't let them discourage you.
They'll tell you that you're not a billion-dollar business; that you're a feature, not a product; that you should pivot; that you're too early or too late or don't have enough traction or have too much traction--the list is endless. They don't know your business like you do. They don't see the world like you do.
My mentor Didier Elzinga (CEO of Culture Amp; raised $76 million) often says, "Focus on the people who do believe in you." It just takes one, and then the snowball effect kicks in. You're building something that doesn't exist yet, so of course not everyone will get it, but when the going gets going, the tough get going.