Five surefire ways to blow a funding round
There’s lots of advice on the internet for entrepreneurs these days, on everything from sales and marketing to HR and operations. Fundraising is no exception – there are plenty of articles on how to create a winning pitch deck, how to find investors, how to negotiate a term sheet, etc. But this time, we are going to do the opposite. We are going to give you 5 sure-fire ways to NOT raise money for your start-up.
Reach out to the wrong investors
Angel investors and VCs are not busy people at all. They love nothing more than spending their time reading unsolicited business plans sent in cold from people they have never heard of. Especially when those plans are for a completely different type of business or industry than they typically invest in. This is the most sure-fire way to ensure zero success in your fundraising efforts.
If, on the other hand, you do want some success, please spend some time researching your potential investors, make sure your business is a good fit for their investment criteria, and then move heaven and earth to find someone who can make a warm introduction for you.
Do not articulate an attractive market opportunity
Let’s suppose you didn’t follow my advice above and have actually scored a meeting with the right type of investor. You still have plenty of ways to screw it up, so here comes tactic number 2: do not present them with an attractive market opportunity, and definitely do not articulate your vision for capturing it. Do not show how you have identified a significant problem, pain point or inefficiency within a huge market (over $1 billion or more). And whatever you do, make sure you do not clearly show how your product or service addresses the problem in ways that others cannot. Unfair competitive advantage? Please do not mention that term in any way, shape or form. At least not if you want to successfully raise money for your company…
Do not establish credibility for yourself or your management team
The most important element in any start-up is the people behind it. Investors will tell you how they often prioritize the quality and track record of the team over the product or idea. So if you want to lower your chances of raising money, do not spend any time at all talking about your team’s background, how much experience they have in this industry, how they’ve worked together before, or their track record of success with similar projects. Instead, spend the valuable investor time talking about how awesome your company’s office will be, or how many foosball tables you plan to have in each corner. The meeting will be over in 10 minutes flat – I guarantee it.
Offer investors a terrible deal
OK, we’ve all seen Shark Tank – we all know that one of the easiest ways to sabotage your own fundraising is to offer the investors a really bad deal. Either ask for an unrealistic valuation or offer a ridiculously small share of your company’s equity, say 3%. Better yet, do both of these things together! This will often be so offensive to investors that they will pass on your deal, no matter how awesome your product is.
Be a jerk
Remember, investors are people too – they want to do business with people they like and respect. All other things being equal, they will typically choose the deals where they get along with the founder and management team. Founders that are arrogant, rude, obnoxious or unprofessional will significantly decrease their chances of receiving an investment. So if you want to make sure you leave the investors’ office with zero dollars, it’s time to channel your inner Erlich Bachman and be as obnoxious as possible. Oh, and one more thing – after the meeting, do not send a thank you or attempt any sort of follow-up whatsoever.
Folks, there you have it: 5 absolutely fool-proof ways to sabotage your fundraising efforts. Use them at your own peril. For those that prefer success instead, or need some useful tools and advice on how to actually improve your business, please visit us at www.decisioncfo.com.
Written by Peter Kihara
CFO Advisor for DecisionCFO, LLC.
During his 20 year career, Peter has provided financial and entrepreneurial leadership to numerous companies seeking growth through acquisitions, raising capital, improving operations and/or turning around failing businesses. At DecisionCFO he has served as CFO Advisor to such thriving technology companies as Thuzio and Mediapredict.