The #1 Mistake Founders Make When Seeking Funding
And how YOU can do it right
Are you a startup founder who wants to learn more about getting access to capital to grow your business? Or have you already gone through a painful process raising capital and want to do it with more confidence, competence, and control the next time around?
If that sounds like you, you’re going to love this post, The #1 Mistake Founders Make When Seeking Funding.
We’re talking about:
- What that #1 mistake actually is
- Why this mistake significantly *hurts* your raise
- What you start doing TODAY to drastically improve your process
Fundraising has a well earned reputation for being a life-zapping, demoralizing and generally awful experience for many founders.
Basically, fundraising sucks.
But it doesn’t have to be that way.
The #1 Mistake Most Founders Make
Imagine you’re in a room with a bunch of potential investors. You’re talking with Ms. Money and she says “I’m really interested in your business. Why don’t you send me over your stuff and I’ll take a look.”
At this point, most people would jump at the chance to send their “stuff” – their pitch deck, pro forma, and other sensitive company information to an investor.
This is usually the beginning of what might be considered a due diligence process by most angel and seed-stage investors. For founders this is an exciting green-light and an opportunity to dazzle. On hearing these magical words, founders happily rush home, package up their “stuff” into an email and send it off.
And that, my friends, is the #1 mistake most founders make.
Why “Sending Your Stuff” Hurts Your Raise
So why is this approach a mistake?
You’re going to meet a lot of people in your raise process, and as the founder it’s your job to manage your process and qualify your investor leads.
When you’re first meeting someone, you have a new connection. A lead. And while Ms. Money may be genuinely interested in you and your company, they don’t have enough information or connection to you to have a strong vested interest in actually reading “your stuff”. You can certainly send over that 20-page document, but now you’ve given a new connection homework. The likelihood that they will actually read it is small, and you’ve given up control of your own raise.
Here’s why this hurts your raise:
- You’ve lost the opportunity to lead your raise in a way that allows *you* to due diligence on potential investors and deepen these new relationships
- You’ve lost control over who has access to your documents or version control
- You have no clear way to communicate with potential investors
There’s a better way.
What YOU Can Do TODAY To Drastically Improve Your Process
So what’s the alternative? You use a new script.
A prospective investor is excited by your idea and you have an authentic connection. They say “send me your stuff” but this time you respond like this:
“Wonderful! I would love to share more information with you about the company and the plan.
I am in the process of preparing to open my raise and anticipate doing that in the coming weeks. In the meantime I would love to schedule a brief follow up conversation so I can tell you a little more about the opportunity and find out a little about you.
I’m working on socializing the offering with a group of investors who will be invited into the due diligence process once open and I would love to include you in that group if it seems like we are a fit for one another.”
This response is a game changer.
- It puts you clearly in the driving seat and levels the playing field between you as a professional and the investor as a peer. (Anyone who is not willing to work with you on these terms will self select out of the process saving you time and eliminating “arrogant money” which comes with it’s own problematic set of baggage.)
- It signals to the investor that you are a competent manager leading a defined process to raise capital.
- It makes it clear that you value your offering and the work that has gone into developing a package of information around it, and that information is not available to anyone simply by request.
- It gives you the opportunity to qualify and aggregate interest in advance of opening the raise which, in turn allows you to build engagement and anticipation leading up to that event.
- It puts you in control of who sees your materials rather than having them forwarded to people you have no connection with. You have access to all the positive, and negative, reactions to your offering within a protected format that is only accessible through a conversation with you.
And most importantly…
- It is the first step in building the capital network around your business made up of investors with whom you share mutual respect, aligned values and and a willingness to engage in a professional process with a defined schedule and goal.
So now you know the #1 mistake founders make when starting a raise, why it hurts your raise process, and what you can do about it.
The bottom line? If an investor is not willing to spend 20 or so minutes talking with you as a follow up to their initial interest, it is unlikely that you will be able to elicit the level of engagement needed to get them through due diligence and across the line.
Better to figure that out early and focus on investors who appreciate your leadership, understand your desire to manage a process critical to your business and respect your desire to qualify them ahead of inviting them to participate in your offering.
All the best,