Two tweets about raising money was all it took to get 81 email responses and 53 customer development calls with founders. I haven’t had this big of a reaction to an idea and I’ve done this type of research on product ideas for the last 13 years!
That’s when I realized that fundraising may be startup founders’ biggest pain point.
In the interviews, my business partner and I asked founders about their fundraising process and problems. During our conversation, we gave each founder detailed advice on how to improve their chances of success with fundraising. What we heard shocked us. Startup founders are a confident bunch often with long track records of success in whatever they do. When it came to fundraising though, we kept on hearing the same thing:
“I’m not sure what to do next.”
Founders who had self-funded a small business before told us they knew how to sell to customers, but not to investors. Seed-stage founders knew how to connect with angels, but they had no clue what institutional investors were looking for. Even founders who had raised a series A didn’t feel confident they knew how to get their next round done.
The insecurities we heard on our calls are what cause founders to make decisions that can stall or halt fundraising altogether.
Based on our interviews and over a decade of experience raising money and helping others raise money, here are the five critical mistakes most founders make:
1. Pitch Deck Templates Won’t Get You Funding
Most founders follow templates and stock deck advice instead of looking within and finding a way to tell their own unique story. They assume that what got one company funded years ago will get their startup funded, so they make their deck look and sound like everyone else’s.
Template decks lack story, buildup, and character, with titles that simply say “The Market,” “The Team,” “The Opportunity,” and “The Competition.” Unfortunately investors see these types of decks more often than not. They can easily tune out when they see slides and information they think they’ve seen thousands of times. What’s worse is that they’ll often bucket your company into a particular type and make the wrong assumptions about your specific startup.
This makes them pass on your company because you didn’t communicate your story and instead turned it into a generic, cookie cutter looking business.
2. Sending Your Deck To Investors Before It’s Ready Will Hurt Your Chances
It’s common for founders to get connected with investors in the process of asking for advice from friends and other founders. With good intentions, these friends and founders will send your deck to investors that they know. This can be very effective because warm introductions are more likely to get you investor meetings. Awesome, right? Not if the deck isn’t ready yet, which it usually isn’t.
Too often we’ve seen a bad deck fly around between Angels and VCs, ruining or slowing down the chances of a good company getting funded. When a founder let’s their deck out before it’s ready, they aren’t showing their business in the right light. Investors assume that the founder hasn’t thought about their business and the opportunity thoroughly enough.
The reality is, people will talk about your startup and send around your deck even if they don’t know you. A bad version of a fundraising deck will spread everywhere and be talked about among investors. By the time a founder has perfected the deck and tries to send it to investors they haven’t shared it with, those investors will already have passed on the opportunity.
3. Without An Investor Outreach Strategy You Won’t Get The Right Investors
Many founders reach out to anyone and everyone who could potentially help find investors or even invest themselves. They are open to any introduction, and don’t spend the time to understand investor criteria before they’re introduced.
This “spray and pray” tactic leads to a mismatch between the investors you pitch and your company. For example, many seed round companies who are raising a few hundred thousand dollars reach out to big venture capitalists who don’t do investments of that size or invest in their type of company.
Founders who talk to investors without doing proper diligence can ruin their chances for future rounds of funding because a later stage firm saw a version of their story that becomes old before they even got to pitch them.
4. The Fundraising Advice You’re Getting Isn’t Helping You
Founders tend to ask many people for advice on their deck and end up churning through revision after revision in response to the last piece of feedback they got. The advice they get from multiple sources is often contradictory and based on a limited understanding of a founder’s company.
Often, this advice comes from people who have the wrong lens. For example, they worked as a VC but were investing in series B companies, yet they are advising your seed company. It’s also likely that any founder that you are getting advice from has only raised money or advised others to raise money a handful of times at most. They have their own limited experience pitching investors and what worked for them might not work for you in the same way.
Yet too often founders give key decisions like deck content or how much to raise to people who don’t understand their business, plans for future growth, and investor targets. Blindly following advice on deck and deal structure will lead to a fragmented story and often, regret about deal terms. What you need is advice that aligns with your type of business and what you should be accomplishing now.
5. Making Things Up About Your Business To Appease Investors Will Hurt You Later
To raise money, some founders tell investors a story they want to hear, instead of a story that represents their current and future business. They inflate their forecasts, or represent their business as focusing on a particular market when in reality they focus on many markets.
Your chances of raising money do not increase when you are trying to constantly appease investors. Of course, founders just want to make investors happy so they do this for a variety of reasons including to secure an anchor investor, finally get done with fundraising or because they think the investor knows best. Even advice from investors should be filtered. Just because they have the money you want doesn’t mean they know what’s best for your business. Worse even, you can often lose sight of what you believe about your business and how you plan on growing it.
Founders who create a story for investors that isn’t aligned with their business are setting themselves up for failure. They get a bad reputation with their investors, who then tell others not to invest. They have trouble getting money on the next round. And they have issues with their board later when the board asks why they haven’t hit their numbers.
Want to avoid these common mistakes?
Fundraising is the biggest pain founders have and these five mistakes are what can easily make or break funding:
- Pitch Deck Templates Won’t Get You Funding
- Sending Your Deck To Investors Before It’s Ready Will Hurt Your Chances
- Without An Investor Outreach Strategy You Won’t Get The Right Investors
- The Fundraising Advice You’re Getting Isn’t Helping You
- Making Things Up About Your Business To Appease Investors Will Hurt You Later
My business partner and I have helped hundreds of startups raise money from all kinds of investors and through that process we’ve reviewed and iterated upon countless decks. We’re now building free software to help you get feedback on your pitch deck and share it with investors. Sign up for early access and be one of the first people to use the product!