Finding investors is a critically important stage for startups that can determine their success or failure. However, many startups make mistakes that can deter potential investors. Here are the top 10 mistakes when seeking investments for startups:
1. Hyperselling Yourself
Overly aggressive self-promotion and exaggerating ideas can create an impression of insincerity and desperation. Investors value realism and honesty over exaggerated promises.
2. Including Clients in the Portfolio Who Are Not Yet Closed or Working with Other Products
Listing clients who have not yet signed a contract or are not using the startup's main product can undermine investor confidence.
3. Messy Cap Table
An opaque and convoluted capitalization structure can deter investors, as it complicates understanding who owns what shares in the company.
4. Selling Too Much Equity for Small Investments
If a startup gives away a significant portion of its capital for small investments, it can indicate undervaluation of the company and create problems for future funding rounds.
5. Lack of Accurate Forecast of Funding Needs
Relying on market trends and comparable companies to determine funding amounts instead of a clear cost calculation can show investors a lack of financial discipline and understanding of your needs. A simple table should be made to include all projected startup expenses until the next investment round.
6. Lean Mindset
Investors want to see where founders will spend money and believe that too much money can distract the startup from its core idea. There may be a temptation to add unnecessary features or create project spin-offs, which can significantly divert the team from the main task. Investors want to see a balance between reasonable frugality and strategic investments in growth.
7. Conflicts Between Founders
Disagreements among company founders can seriously affect its future. Investors want to see a strong and united team ready to work towards common goals.
8. Lack of a Clear Plan
The lack of a strategy and action plan for the company shows investors that the startup is not ready for long-term development and scaling.
9. Absence of CRM or Tracking System for Company Metrics
Without a system for tracking key performance indicators (KPIs) and managing customer interactions (CRM), the startup can appear disorganized and inefficient in business management.
10. Insufficient Vetting of Investors
Startups must ensure that potential investors have the funds to avoid wasting time pitching projects. It is also advantageous if the investor can support the company in the long term. This will prevent situations where the startup is left without funding at critical development stages.
Avoiding these mistakes will help your startup not only attract the necessary investments but also establish trusting and productive relationships with investors, which is key to successful growth and business development.
And we are always here to support you.
Authors:
Yauheni Khodzkin
Partner and COO
