When scaling your start-up, things feel like they’re going a million miles a minute and can, at times, become a little unstructured. But when it comes to raising investment – whether you’re raising from VCs, angel investors or equity crowdfunding – you need a strategic, organised approach.
Here, we share five of the common mistakes we see people make when raising investment, and most importantly, how to avoid making them yourself!
Raising investment typically takes between 4 – 6 months from starting out to cash in the bank.
With this in mind, if you think you’ll need investment in the next 6-12 months it’s better to start the process now and give yourself the luxury of time to get it right rather than panicking as the end of your cash runway nears!
Investors see thousands of pitches a year so it’s worth investing time and money in having yours professionally designed to make sure it is the one that stands out in the sea of decks they’ll be receiving.
You also need to carefully consider the content and structure of your deck. Investors want to get to the good stuff quickly so you should make it easy for them. Clearly outline how much you are raising, your valuation and your use of funds as well as articulating what you do, the size of your market and how you make money.
When it comes to engaging with investors you need to ensure you’re approaching the right kind of investor. This means doing your research, understanding their investment mandate, understanding their portfolio, their ticket size and timeline. There’s no use approaching an SEIS-only fund if your SEIS eligibility has expired. It’ll also significantly increase your chances of getting a meeting if you can get a warm introduction.
Giving yourself ample time to properly organise warm introductions and ensure you’re approaching the investors most relevant to your sector will help.
Valuation can often be a sticking point for both founders and investors when it comes to negotiating a round.
Be realistic about what valuation you can command and make sure that you can explain your rationale behind it and defend it.
Fundraising is about coming up with an investor strategy and matrix of where the money may come from and running multiple scenarios at once, therefore if one route to investment falls through you still have other opportunities on the table.
Whenever we’re working with a client we’ll often be speaking to VCs at the same time as speaking to angel investors and preparing for a crowdfund – if we get all of the money offered from a VC great, if not, we’ve always got a plan B!
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