Funding is unarguably the most exciting moment for a startup. It’s when you get the much-needed external validation, and fires up your team like nothing else. However, funding is not without its pitfalls, and startups that don’t pay attention during this phase end up regretting later.
So if you’re looking for funding, great! But stay away from these classic mistakes:
Unclear objectives: Funding is good, but make sure you have the objective crystal-clear. “What are you going to do with the money?” is a question you’ll be hearing a lot of times from unexpected people. Most of the times, bootstrapping is a good option for startups, and funding should be reserved when you really want to scale up.
Not understanding the investor: More important than the amount of funding is your relationship with the investor. When you are raising funding, make sure you understand what the investor’s angle is. Is yours a financial investor, who needs a lot of information before making the commitment, or a strategic one, who might later become a customer? Depending on that mindset, you need to selectively share information with the investor and work with clarity.
Irregular cash flows: At the end of the day, investors put their money into solid businesses that they can envision growing and becoming something big. The basics of that is cash flow; even if yours is a loss-making business model, the cash flows tell the story of how well organized the business is. Irregular cash flows are enough to turn off the really good investors, so make sure you put the house in order first.
Raising too much: More is better, but not always for startup funding. Raising more than you need can be a tempting prospect, but don’t forget that it can dilute your stake too much. Our advice is to raise only as much as you need, which indicates you are an efficient planner.
Funding is tricky, and there are many ways of going wrong. We hope this blog has been of some help! What are your funding experiences? Tell us in the comments.
Image credit: https://www.flickr.com/photos/howardlake