There are many types of mistakes while raising startup capital. This post addresses several that occur all too frequently.
Poor preparation
You need to prepare before starting to meet with potential investors.
Please see our Blog Posts:
- Before First Contact With An Investor
- Investor Strategy for Startups
- Your Due Diligence on Potential Investors
Not enough money
Some startups do not ask for enough money. You need to remember to plan your cash needs based on some things not working out optimally
Managing the money
Investors will want to know in advance of investing how the funds will be used.
The startup CEO needs to manage the funds so that the money lasts 3-4 months past the availability of the benchmark that justifies the next tranche of funding.
Inadequate business plan
You need a robust, complete Business Plan. In this blog, 61 Blog Posts include references to Business Plan. Please start reading with Business Plan
Inadequate team
Investors invest in teams. Be sure that yours is the best team for your offering for your target market.
Too many investors/stakeholders
Investor relations management and stakeholder relations management are very important tasks for the startup CEO. These can be unmanageable if there are too many investors or too many stakeholders. As one aspect; raising money from too many family members and friends can create these problems.
Inappropriate legal agreements
Angel investors who are amateurs should be avoided for several reasons. One being that they may provide improper documentation. Major angel groups have sample Term sheets on their Websites. In early stage investments Startups should issue convertible notes to seed investors, not equity.
Advertising or soliciting investors.
In many countries including the US there are legal constraints as to how you can advertise for investors and how you can solicit from potential investors and from whom you can solicit investment. In the US you must comply with both state and federal regulations. In the US you can accept investment only from “accredited investors”.
You need to research your potential investors. It is easier to get divorced than to get rid of an investor.
Mistakes While Raising Startup Capital
You needs an array of advice before starting to raise money for a startup. This includes legal, business, financial and accounting advice.
References
- The 6 Biggest Mistakes in Raising Startup Capital
- 5 legal mistakes startups make while raising capital
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Getting capital is a big roadblock on the way from a tiny startup with a great idea to a thriving larger company. I’ve discovered from my own experience and through networking that this is the point in a company’s development when it’s not enough to be brilliant – you truly have to make yourself accountable.