Oct 26, 2023
Unlocking VC funding: 10 common entrepreneur mistakes
All over the world, there are ambitious tech entrepreneurs just like you, looking for ways to take their new products, services and concepts to a mass audience. In an industry that is constantly evolving, there are always opportunities to break new ground and gain market share.
However, for many, making their dreams a reality requires outside investment to help them get things off the ground – and in the current climate, that investment is harder to come by than it has been in the past. The global startup fundraising total for 2022 was just over $415 billion, according to Hubspot, but that was down 35% on the record high achieved the previous year.
In a more competitive climate, it’s therefore more important than ever to get your searches and pitches for investment absolutely perfect. This blog highlights ten of the most commonly-made mistakes, so that you can avoid them in your own quest for funding.
Nonsensical metrics: presenting clear and digestible information regarding your financials and performance is absolutely essential, and this starts with the use of simple and commonly-used metrics. If you use unusual KPIs to present your information, it can quickly raise red flags as it can look like you’re fudging figures to hide something.
Lack of differentiation: it’s vital to stand out from the crowd, and articulate why you’re different and better than your competitors in the same space. Many businesses try to make themselves attractive by focusing on current trends and areas of interest, but this often isn’t enough because it doesn’t look ahead to being on-trend in the future.
Too much initial spending: many investors will be put off if you’ve already burned through a substantial amount of capital. If you’ve already committed plenty of your own funds and have struggled to make any headway, it can lead investors to think that they’ll basically be throwing their money into a black hole.
Third-party introduction: if you want an investor to get excited about working with you, then you should contact them directly. Using a third party such as an agent, a contractor or even a banker to get in touch on your behalf can come across as cold and disinterested, and stops you building a strong rapport.
Lack of knowledge of investors: when was the last time you saw an entrepreneur on Dragon’s Den or Shark Tank get investment despite not knowing the background of the investors? The answer is pretty much never. Not doing your homework into prospective investors, and tailoring your approach to their key areas of interests, is a sure-fire way to fail.
Desperation: never tell prospective investors that you’re struggling to get the funding you need, or even give the impression that you’re short of money. This level of negativity will send investors running for the hills, because they’ll feel that they’re being asked to bail out a sinking ship.
Soft approaches: you might think that arranging an informal chat over a coffee makes for a friendly approach, but this can actually be a little too soft. Investors are busy business people who don’t have time for a vague, exploratory meeting – they want to get down to facts, figures and unique selling points as quickly as possible.
Barriers to information sharing: connected to the previous point, investors don’t want to waste time and energy getting access to your key data. If you make it hard for them to meet you, or to get hold of your pitch deck, they’ll quickly lose interest and focus on other opportunities where they can get the information they need.
Being aloof: you might be tempted to make yourself seem busy, and indicate to investors that you have a lot of meetings with other investors lined up. But far from making them want to chase you, instead it can leave the impression that you’re unwilling to be flexible, or put the effort into cultivating a relationship.
Not knowing previous investments: some investors you approach may have already invested in one of your competitors, or at least another company in a similar space. This won’t always mean that there is a conflict of interest, but failing to establish whether it will be or not in advance means you could end up wasting your time, and that of the investor.
The startups that have had the biggest success in getting investment – including with us at InfinityVC – are those that have avoided these pitfalls. They’ve been honest, upfront, approachable, and clear in their intentions and ambitions, which has given them the best possible platform for growth in the future.
To explore startups who have got it right, take a look at the success stories in our portfolio.