The 10 Most Common Mistakes Entrepreneurs Make when Raising Venture Capital

Last year, venture capital firms invested approximately $48.3 billion in a total of 4,356 deals.

This represented a 61% increase in total investment and a 4% increase in deal volume.

Historically, institutional capital (Venture capital firms, private equity, and hedge funds) have been a popular source of capital for both early stage and mature companies looking to raise money needed for growth.

We regularly hear about successful deals funded by these firms.

When in reality the overwhelming majority of opportunities presented to VC’s are rejected.

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In the following slides, you will learn about the top 10 mistakes entrepreneurs make while reaching out to prospective investors so when your time comes, your pitch will

be on point.

TOP 10 MISTAKES

Wrong:

Many entrepreneurs want to raise capital from the investor offering the most money at the highest valuation.

Right:

Pick an individual/institution that shares your vision for the opportunity and will provide value beyond just an

injection of capital.

#1 | Smart vs. Dumb Capital

Wrong: Blowing out your equity positions in the company in order to raise a large sum of money. This can lead to a loss in control of the business, minority ownership, and potentially lead to issues in raising subsequent rounds of money.

Right: Raise enough capital to support

growth but allow you to remain in control of the business.

#2 | Not Preserving Equity

Wrong: Asking for either too much or too little. The cost of capital for beginning businesses is extremely high due to the risk for the investor. Keep this in mind when honing in on a number for the initial ask.

Right: Raise whatever large costs you foresee in the horizon (Capital expenditures +

Intangible assets), if any, plus three months worth of operating expenses.

#3 | Asking for the Wrong Amount

Wrong: Valuing your company at $500 million when it does $500k in annual revenue. This will be a red flag for investors.

Right: A valuation driven by aggressive, yet obtainable

projections based on historical performance of the company and similar ones in your industry. It is

acceptable though to slightly overvalue your business when you begin the negation stage of the

due diligence process.

#4 | Unrealistic Valuation

#5 | Limiting the Process to Venture CapitalWrong:

Putting all your eggs in one basket.

Right: Reach out to multiple resources for

funds. Venture capital is not always the most appropriate fit for companies

looking to raise money. Explore other opportunities such as debt financing partners, crowdfunding campaigns,

strategic players in the sector, and other creative methods to source

external capital.

#6 | Being UnpreparedWrong:

Not having fundraising materials and a solidified pitch.

Right: Getting a meeting with a Partner at a

Venture Capital firm is a big deal. They have vetted you and your opportunity,

and them taking time to hear more about it validates your business so, be

prepared with a bulletproof pitch ready with a block at the end of the

call/meeting for a Q&A session.

#7 | Excessive Number of Team Members on Initial CallsWrong:

Overwhelming the investor on the first few calls.

Right: Limiting the number of management team members on initial calls/meetings. The CEO (to field general business questions), CFO (financial components), and CTO (technical guru if applicable) should be suitable for the introductory conversations.

Wrong:

Distributing sizable portions of the investment towards salaries and/or travel and entertainment.

Right:

Have a definitive answer to where the capital will be allocated towards. Ideally, each

segment should be directly related to helping the business grow such as marketing or

research and development.

#8 | Not Allocating the Funds Correctly

Wrong: Being unaware of the length fundraising can take. By the time you find a suitable investor, make introductions, and the investor conducts their due diligence methodology, the capital raising process can take 3-6 months.

Right: Making sure you have the financial support to

continue growing the business in the meantime.

#9 | Misjudging Time to Raise Capital

Wrong: Going to market without proof of concept. Having an idea is great, but the business isn’t worth anything without substantial users/customers, IP, revenue, or brand presence.

Right: Gaining traction in the market prior to raising

money. This will drive down the risk associated with the investment and increase valuation.

#10 | Not Achieving Milestones First

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