7 Major Startup Funding and Valuation Mistakes First-Time Entrepreneurs Make (and How to Avoid Them) , A mistake is just an opportunity for growth and learning. Minor mistakes are typically viewed as a lesson in what not to do, so don’t be scared to make mistakes now and again, mainly if you operate a business or thinking about launching one. When you know what not to do, you are one step closer to understanding what to do and how to do it!
We reached out to hundreds of small business owners, growth strategists, financial advisors, legal experts, and business consultants to compile the biggest mistakes that startups make so you can avoid them when starting your business .
Entrepreneurs from initial stage startups must pitch to investors to acquire funding, yet many entrepreneurs are unskilled or poor at giving the presentation. As a venture capitalist and angel investor who has seen many pitches, I have prepared a list of 7 major startup mistakes and things to avoid if you are an entrepreneur looking for private or venture funding.
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7 Major Startup Funding and Valuation Mistakes First-Time Entrepreneurs Make (and How to Avoid Them) : Lack of clear vision and purpose
This should be the first step for each startup entrepreneur, yet it is usually ignored. Most often, individuals jump right into their bright solution ideas without understanding why they are doing what they are doing or what kind of change they want to see in the world.
Without a defined goal, a startup might ramble around without much momentum. And when things worsen (as they always do), you won’t have anything to pull you or your team through. A clear purpose gives your work true meaning and creates a cause around which others can rally. It may also provide your brand actual weight because it has a reason for existing; therefore, putting effort into shaping and expressing this is worthwhile.
7 Major Startup Funding and Valuation Mistakes First-Time Entrepreneurs Make (and How to Avoid Them) Overly focused on Fundraising.
You are at a severe disadvantage if you are focusing particularly on funding and the purpose of your first interaction with the investors is to ask for money.
No matter how attractive the returns, how strong the promoter credentials or how sound the business model – Every Single Advantage Counts . One of the common funding mistakes is to invest with the heart or simply at face value.
Try to make the connection as soon as possible. Use your current connections and contacts to introduce potential investors or persons who can make such referrals. Try to obtain their advice or information—most investors like assisting entrepreneurs and will gladly provide some time and attention. Follow up with them to let them know how you’re doing. When it is time to raise the next round, you will have an entire group of angels and VCs who know you, are familiar with your company, and are warmly willing toward you.
Most businesses are “too early” because they have not completed the essential validation work to decrease investment risk. We all are aware that investing in early-stage companies is extremely risky; however, the risk that is not necessary is unacceptable. Before applying, be sure you’ve reviewed the most important assumptions underlying your business plan.
Do your unit economics scale well?
Will your solution influence customers’ behavior?
Can you attract consumers at a fair CAC?
Traction is the most effective way to demonstrate the majority of these. However, if you cannot get it without funds, you can find alternative methods to collect data or conduct tests. Then, before you apply, obtain external validation that you are prepared. It’s easy to trust your marketing pitch.
So, if you don’t want to be in the 29% of startups that fail to attract outside funding, you must avoid certain fundraising mistakes.
Not Understand Your Audience
You know your business better, but at the very least, I would like you to think you do. It is difficult to remember what was evident in your market and what you learned as you worked on your business. As a result, entrepreneurs, particularly technical founders, assume that their audience of investors also knows these concepts.
But ultimately, your job is to structure the company, deliver a product, and attract capital.
However, we are concerned about your company’s success and the return on our investment. Here are four suggestions that enable you to communicate with investors:
- You can avoid jargon, technical terminology, and acronyms by using everyday English. It’s essential that the investor understands what you are saying right away. If the investors are confused, they will go on to the next company.
- Just discuss your business, not about technology. I like to know that your company works better. How are you going to attract customers? What are the most important metrics?
- Focus on best outcomes rather than features. This appears to be a common issue with competitive matrix presentations. Don’t just tell them for your product has smart features; explain what smart features allow you to do that your competitors can’t.
- Very few companies have ever succeeded just because they had the right names in their cap table.
- Lastly, you do not have much time because this is a pitch. Instead of getting bogged down in the details, skim over the surface. If you say something interesting, they will want to go on for further conversation.
Many new businesses have skeletons in their closet. Perhaps you have had previous co-founder difficulties, down rounds, or pivots. Maybe you lack substantial intellectual property rights or constructed most of your solution with third-party components. You don’t have to shout these weaknesses from the rooftops, but don’t make me look for them when I’m deep in research. You are violating our trust if it seems you have been trying to hide these flaws. And trust is essential in early-stage investing.
Angels have relatively little power once they write their checks. We must believe that the founders will continue to behave with honesty and in the best interests of their investors. Anything that impacts negatively on that trust can ruin a deal.
Investing too much (or too little) Capital
For a new entrepreneur, money will undoubtedly be a significant problem for a new business. Most entrepreneurs have little money to spend, and those who have may easily fall into the “you have to spend money to create money” mindset, which can be dangerous if left unchecked. Instead, find an acceptable medium. Consider your spending and resources, and learn to spend enough but not too much.
Failure to Make Commitments
Usually, founders are unfair about deadlines and milestones. Their “use of funds slides” discuss where the money will be spent but not what it will deliver. Investors want to know if, as a result of this investment, you’ll release a new version of the product with the following improvements, reach a certain number of consumers, and produce a certain amount of income. These achievements should also be linked to the goals you need to meet before the next round of funding. Because of the milestones, we are funding, you must demonstrate that you can raise the next round at a high valuation.
Clear commitments and milestones show that you have thought through your strategy and understand how to achieve your long-term goals.
Raising too Much (or too Little) Capital
Usually, founders are unfair about their capital requirements they either get over investment and suffer or raise too little CA Viswanathan V a expert in startup valuation says ” Startups fail to understand how valuation works and how to avoid falls of it , they underestimate the requirement or overvalue , when the market is good every one will raise but only the one with a good business plan survived a recession or bubble like dotcom bubble ”
Properly calculate your working capital requirements, prepare a proper business model canvas
Methods of Business Valuation and How to avoid the pit falls
To know more about you can follow the blog our other blog Valuation for Business
Fundraising is difficult and time-consuming work. Even if you execute everything correctly, the chances of an angel or venture capitalist investing in your company are low. However, if you commit these unforced errors, your chances of winning swiftly diminish. As an entrepreneur, you are taking a considerable risk. Make sure you offer yourself the best possible chance of success.
7 Major Startup Funding and Valuation Mistakes First-Time Entrepreneurs Make (and How to Avoid Them) throws a light on the situation
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