How To Overcome 5 Common Fundraising Mistakes
With record-breaking funds raised, investors attracted and unicorns minted, Indian startups have accomplished with ease what thousands of startups fail to do. But behind this illusion of ease of fundraising lies a hard and formidable journey of raising funds
Not a day goes by when there isn’t a news article covering the remarkable fundraising feats of startups across the globe. But Indian startups have especially been enjoying the spotlight since their watershed moment in 2021. With record-breaking funds raised, investors attracted and unicorns minted, Indian startups have accomplished with ease what thousands of startups fail to do. But behind this illusion of ease of fundraising lies a hard and formidable journey of raising funds.
There is no denying that fundraising for a startup is a challenging and involved process. It can consume months’ worth of precious time let alone countless efforts. But what’s most challenging about the process is that any step of the way, one fatal mistake could lead to the company missing out on critical capital. Although there is no step-by-step methodology for developing a startup fundraising plan, there are some pitfalls startup founders can avoid to secure funding.
Limiting to equity funding
As angel investors and VCs gather around the startup ecosystem, founders often assume that they are the only source of capital available. However, receiving growth capital does not always require foregoing equity. Startup founders can explore other sources of funding such as grants from the government or other organisations, partnership funding and venture debt. Additionally, founders can always renounce fundraising entirely in favour of bootstrapping. While it is true that the bulk of funds are often raised from angel investment and VC, most startups also resort to these alternatives at some point in their business journey.
Relying on cold outreach
It is widely known that companies introduced through mutual contacts receive funding easily and several times compared to unknown startups. It may seem unfair but investing money in a startup does require a large dose of trust. Consequently, founders should avoid relying on cold outreach to potential investors. Instead, they should focus on networking, leveraging existing connections and involving in the local startup community so they can be introduced to potential investors. At the same time, it does not mean that founders should not apply for incubators and accelerators inviting open applications.
Not knowing when to raise funds
There is no denying that capital is the lifeblood of the organisation but injecting funds at the wrong time can be a grave mistake. In fact, the majority of startups that apply for funding are often not ready for angel investments or venture capital. Unfortunately, most startups get only one bite of that apple, which is exactly why founders should evaluate thoroughly if it is the right time to raise capital. Most successful startups practice milestone-based funding to raise funds to get from one milestone to another. Startups should build some traction and gain leverage before raising funds.
Missing the bullseye
A startup’s fundraising efforts largely hinge on its ability to make itself and the business idea and model attractive. A large part of this is about addressing the unsolved problems of the market and offering unique solutions to the customers. Often startup founders tend to get caught up in explaining their product technology or efficiency and completely overlook the reason for their startup’s existence and the reason for its continued success. Founders should address the pain points of the customers and how the startup is solving them better than anyone else.
Quoting any valuation
Although startup valuations indeed are more of a science of approximation than clear financials, that does not mean founders have the liberty to quote any number off the top of their heads. Contrary to the popular belief that higher funding would translate to a higher value, over-raising funds can be detrimental to business growth. This is so because funds are eventually spent, leaving the startup overvalued in pursuit of funds. To get to the next round of funding, the founders will have to justify the inflated value to ensure business growth and survival. Founders should quote as accurate the worth of their startup as possible.
Fundraising is a herculean task but every startup must pass this test to move to the next phase of growth. Most startups unknowingly make mistakes of chasing capital at the wrong time, seeking the wrong investments or overvaluing the business worth, all of which inevitably lead to the decline of the business venture. By avoiding these common pitfalls and putting in efforts consistently, founders can increase their chances of attracting investors exponentially.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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