This video discusses common mistakes founders make when fundraising, specifically focusing on demanding pricey valuations and negotiating against oneself. It emphasizes the importance of aligning valuation expectations with market realities to avoid signaling a lack of experience to investors.
What this video covers
One of the mistakes that I see is demanding pricey valuations. Essentially, going out to market with a valuation that may not really adjust to what the market is paying. I think if you go out either with a valuation that is off-market, meaning that your competitors are raising maybe half of that or much less than that, then you’re putting yourself in a position where the expectations are going to be high, and it’s going to be very tough, and you’re sending a signal where you’re not really sure or know what you’re doing.
The next common mistake is negotiating against yourself. The last thing that you want is when you are, let’s say, out there; you’re speaking with investors, and then all of a sudden, the question comes around, “What is your valuation? Have you thought about your valuation, or what kind of valuation are you thinking for this round?”
The next mistake or the next common issue that I find on entrepreneurs is not building a network. Building a network is critical. Fundraising is all about building trust with the parties that are potentially going to be interested in investing in your business.
The next common mistake is pitch decks. Storytelling is everything when it comes to fundraising. You want to make sure that you have an amazing pitch deck that, in 15-20 slides, is “capturing” the essence of your business.
The next common mistake is not selling yourself. At the end of the day, we are all walking brands. If you take a look at a company like Facebook, that’s Mark Zuckerberg; Apple, that’s Steve Jobs; you’ve got to sell yourself. Again, this is sales. Fundraising is sales.
The next common mistake is non-disclosure agreements. The NDAs, at the end of the day, and this comes from me that I’m a recovering lawyer – you know, still seeking therapy – is that at the end of the day, an NDA, you’re not really going to be able to enforce it because it’s always subject to interpretation.
I find that those entrepreneurs that just for having an introductory meeting with an investor, and they go with the NDA, you’re going to essentially tell the investor that you’re a rookie and that this is the first time you’ve done it.
You are only pulling the NDA card once you have gotten that interest from the investor, and things are progressing well enough into a due diligence process where they’re going to have access to sensitive information. Until then, refrain from putting any type of NDA in front of them. You want to make the process frictionless, and you do not want to add more friction to the actual process.
The next common mistake is, obviously, not connecting on a personal level. Every single first meeting that you have make sure that you have researched like, “What are they tweeting about? What kind of groups do they follow on LinkedIn or maybe on Facebook?” Maybe they went to the same college that you did, or they are supporting the same sports team that you’re supporting.
The next common mistake that I see is not focusing on the network behind the money. At the end of the day, it’s not about the money. You’ve got to turn it around, and it’s all about the network that that individual that is giving you the money has because you’re going to be able to leverage that network to achieve your milestones much faster, whether that is for distribution, business development deals, partnerships. You want to have investors that are adding value.
The last mistake that I see that is very common is not being familiar with the terms. You see entrepreneurs that just want to get it done very quickly; they don’t review in detail with their corporate lawyer, the structure, and what some of those clauses really mean.
