Fundraising is the most challenging task for the startup founders. Although, it doesn’t seem too complex at first sight because of the thick presence of Govt. financial institutions and direct lending agencies in the UK; but, once the process starts, realities start coming over the surface. It is also true that the majority of startup founders have adequate trade experience and knowledge of diverse sources for fund raising but still, they commit some big mistakes to suffer at large just after initiation of business. Wouldn’t you like to know the most common mistakes committed unknowingly by the founders? Be aware of the following mistakes to sail the ship safely through the turmoil of unexpected challenges:
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1. Assuming All The Money Is Good For Your Business Need
Funds raising ties you in a relationship like the marriage. The investor gives the required cash in exchange for partial ownership in the business or profit. This relationship comes with access to so far missing surprising information, much-needed industry expertise, new technologies, reviews of your plans etc. OK, all of these valuable aspects are favorable to your growth but the involvement of investor often brings in control issues, burned bridges, misaligned incentives, control over major decisions etc also. Therefore, assuming all the money is good for your business goals is not the right approach.
Solution: Determine and evaluate the funding sources for the justification in line of your business plans, freedom, mission, visions etc.
2. Demanding Too Much Capital than the Required
The numbers of businesses failed just because they raised too much capital that they couldn’t use just from the start but paid the cost. There are serious consequences for using too much funds much before you need to invest just because you have ‘too much’. Generally, investors invest 15–30% in start-up businesses; if you are lack of your own money, you need more investors; it puts more barriers to your acts, growth and profitability. Arranging too much capital than the required is a big mistake.
Solution: Be realistic about the financial needs in the line of expected profitability and risk involved. Online ‘business startup cost calculators’ are also available to guide you right but these provide just the estimation.
3. Approaching The Investors Without Having The Plan & Well Arranged Statistics
For most of the founders, raising the funds at the earliest is the prime task even if they are not completely ready with their business plans and statistics. When the founders approach any potential investor, the business plans are shared and reviewed in the circles of investors. Even the slight gap showing the lack of knowledge and experience hammers down the scope of funds raising. In addition, your proposal gets bad fame in the investors’ community; therefore, even if, you approach the investors in future with corrections, you wouldn’t get the rightly priced funds.
Solution: Before approaching the investors, check and evaluate your business plan, growth rate, profitability, expansion plans and risks involved etc. You should know all that you need to convince the investor or lender.
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4. Not Having An Outreach Strategy For Investors
Most of the time, founders contact all the possible sources to get the funds or to get references of investors. Any investor may not be good for you for long-term because each investor has own capacity and interest to invest. Having the business proposal turned down from several investors and lending agencies, you start feeling low because of time and efforts consumed at no gain. In addition, your business plan is exposed to the wider community even before you act over it; therefore, the risk of standing out similar type of business before yours increases.
Solution: Formulate your strategy to find, shortlist and approach the investors according to their investing record, reputation, interest, and understanding for your business type.
5. Negotiation Against Yourself
It is a very common mistake committed by the startup founders. When the founders feel problems in raising the funds as per plans, they start negotiating with themselves. The negotiation for funds requirement comes at the cost of last-minute several changes in business plans that affect the success potential at every stage- set up, production, standards, marketing, expansion etc.
Solution: Know how much external funds your business needs, what is fair and for how much less you can start the journey. Therefore, the experts always suggest people to apply smartly for small business loans or according to their needs and capacity. Don’t let the investors take a driving seat; you know your business plan better than them.
Five Aspects Founders Often Ignore While Raising Money:
- Brand value – Expose and highlight your brand value; it strengthens the confidence in investors
- The time limit for raising money – Fix a time period to raise the target funds
- Relationship with investor – For long-term association, the relationship with investor must be strong and aged.
- Educational training – Funds raising needs diverse skills apart from business management skill; you need to be perfect in demonstrating the business plan in the most impressive manner. The short-term funds raising and management courses are of great help.
- Research over investor – Anyone who is ready to invest in your business may not be the right person to carry the ball to the goal post with you. You need to research over the credibility of investors.
You choose the investors just as they choose you. The low valuation of your financial needs by the investors is common but don’t sell yourself too low. Don’t chase the investors; invite the investors to make them interested in your business plan.