As an entrepreneur and startup founder, one of the biggest challenges you can take on is raising funds. A startup’s first outside round of financing, series seed, can help founders begin operations, hire a small team, launch products, and rent office space. Additional funding rounds – series A, B, C, and so forth – can provide additional funds so founders can boost tech, scale hiring, and begin marketing.
While this may sound simple enough, raising capital doesn’t come without some challenges. Here are the common fundraising challenges entrepreneurs may face:
- You’re trying to raise funds too early. If you are looking to raise money simply because it’s the “next step,” your company may be looking too early. To attract investors – and to continue to grow – it’s important that a startup is prepared to engage in difficult conversations and to prove its worth. Things like building an experienced team of industry professionals, gaining traction or market share, and increasing metrics like monthly active users can all act as proof of concept for potential investors and allow you to prepare a more in-depth pitch. Pre-Seed Stage companies often turn to friends and family for funding as they are typically considered too early for VCs.
- You’re not locating the right (willing) investor. Each investor will have different investment preferences, including the industries in which they invest, amounts to be invested, investment timelines, level of risk, and more. Research is your friend as you try to understand which investor is right for your company and how to reach them. A solid intro – plus some luck – can get you started in the right direction, but you should also consistently reach out to and build a pipeline of investors so that you have a higher chance of engaging in conversations with more VCs or angel investors.
- Your pitch isn’t performing as well as you hoped. No pitch is going to be perfect. There may be gaps in your customer analysis, flawed assumptions in your projections, or room for improvement in your strategy. But by eliminating as many red flags as possible – such as IPO or acquisition predictions, not addressing competitors, or asking for a nondisclosure agreement – you can help ensure that your company even gets considered by VCs and angel investors.
- You never developed a funding strategy. Just as investors have their own strategies to backing certain companies over others, you need to have a strategy when you’re raising funds. What area of your business needs the most help? What are you going to put that capital towards first? Which metrics do you want to focus on improving with this funding help? This not only gives you a game plan after the funding round – where you may not know where to start – but it also allows prepares you to answer investors’ questions and give them a potential timeline for the future. This can potentially also help you stick to your guns or create counteroffers if you receive a less-than-stellar offer from an investor.
- You didn’t plan for the time commitment. Raising capital is a huge undergoing. Not only are you constantly reaching out to connections in the hopes of an intro or to schedule a meeting, but you’re also working on improving your pitch, traveling to meet VCs and angel investors, and planning future funding rounds or how to put capital to use, but you’re also still trying to oversee business operations. All of these commitments can cripple a business if you aren’t careful. Delegating tasks where you can, finding advisors to guide you, and planning in advance for the fundraising timeline can help your startup operate effectively during the process.
Didn’t get the funding you were looking for? If you have the runway, you’ll want to take investors’ feedback to heart – consider their business development advice, look at how you can improve non-vanity metrics, and continue to show why your company has potential. Hopefully down the line you’ll be able to return to those same investors with improved financials, impressive traction, or new products and get the funding you need for continued growth.
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