Like it or not, most entrepreneur journeys include the not-so-pleasant component of fundraising. The reason I say it is not pleasant is because it often takes months, if not longer, and requires resources you may not have as a startup. The age-old chicken-and-egg situation of every startup is you need money to build a product and get users, but you also need a product and users to get money.
I recently spoke with an old friend who is building a startup now. The topic of conversation was raising capital. I have these calls five to 10 times a week, and I have noticed several common mistakes entrepreneurs make, assumptions that are false, so I thought I would address them.
There are five misconceptions about fundraising I hear quite often from entrepreneurs, and here's how I respond to them:
1. You need a deck, so get over it and make one.
A deck is something you send to potential investors that includes all the basic information about your startup. What is the problem you are solving? How are you solving it? Who are you, and who is your team? What is the size of the market? How are you going to penetrate that market? What is the timeline? Is there a technology component?
Some startups think their product is so good, investors won't need a deck. Others may think the investor should trust their word, so there's no need for it. Or you might just be uncomfortable sending a deck before the meeting, but you'll send one afterward. No, no, and no.
Chances are you need investors right now more than they need you. You need to play by their rules, and rule number one is to send a deck that answers the question "Why should I take this meeting with you?"
So stop wasting your time fighting it and start using your time to hire an amazing designer and copywriter to create that deck.
2. Cold emails will get you nowhere, so just don't.
Anyone who has ever raised capital or invested will tell you that an introduction from a portfolio CEO or a friend will always be infinitely more effective than a cold email. Lucky for you, there's LinkedIn and other networks to show you who can facilitate such an introduction.
Sending a cold email to an investor is silly and ineffective, when you could have found a mutual contact and gotten a warm introduction. Don't bother with cold emails.
3. Checking an investor website is not enough.
Just like an investor chooses her investments, you need to choose your investor. There are many things to consider, like the value they add beyond a check, but one of the most important things to look for is the relevancy of an investor before pitching them.
Do they invest in your space? Do they invest at this stage? Have they invested in a direct competitor?
Checking their website alone is not enough. Speak to their previous CEOs and research their most recent investments. Like any other part of building a successful company, do your homework and come prepared.
4. Raising capital at the wrong time could be a huge mistake.
Yes, you need money for the oxygen of your company, and you may have read all about companies raising monster financing rounds. But before you take that leap, make sure to breathe, relax, and think carefully if now is the right time to raise capital.
Raising money too early means the investor defines the terms--not you. Waiting a little and gaining some traction first gives you more leverage and the ability to create FOMO, which often leads to better terms.
5. Skip the industry buzzwords.
Finally, my favorite quote by Leonardo da Vinci: "Simplicity is the ultimate sophistication." The ability to communicate your idea in a simple manner will always win over going into a meeting full of industry buzzwords, superlatives, or going on about the massive size of your potential market.
Keep it simple. Be transparent, speak of the challenges openly, and then focus on the vision and your plan to see it come to fruition. Do not throw around buzzwords in the hopes that it makes you look smart, because it does precisely the opposite.
Raising money for your startup is a mandatory component for most companies, so make sure you figure out what works best with investors and align yourself accordingly. It will save you time and money, two things every entrepreneur needs more of.