Raising Money For Your Startup? The Three Pitfalls Startups Fall No One Talks About
At some point, every founder considers raising outside capital to fund their startup.
Here’s the common pitfalls I see founder fall into:
Pitches and decks matter less than you think
First, they put way too much emphasis on their pitch deck. I’ve seen a founder spend months perfecting their deck and their pitch, wanting to practice it and get feedback from a coach before talking to a single investor.
I asked them again after our third conversation, how many investors have you spoken to since our last call? The answer was none.
You have to get out there and start pitching in order to raise.
Standup comedians have said that the only way to get good at standup is to go out there and bomb for ten years.
Most will never last that long.
Raise to Win, not to not Die
The second pitfall is that startups raise when they need money or when they’re short of their revenue targets instead of raising because they know where to put the money.
You can’t just raise because you’re running out of cash. It sounds obvious, but I see so many founders talking about raising money because they have five months of runway left.
It doesn’t work like that. Investors aren’t going to put money into a cash strapped startup that is almost out of business. Especially once you’re generating some revenues, everything gets measured based on things like CAC, churn, LTV, and other unit economics.
What do you do then?
Sell more.
Improve the product.
And cut your expenses as needed until you’re break even.
It’s really hard to do, but raising money is so distracting I’ve seen founders poor hours into raising and praying an investor comes out of the woodwork to save their ass instead of pouring all their energy into product, sales, and marketing.
Not raising enough.
I see founders going out and putting in the effort to raise only a few hundred thousand dollars. By the time the deal closes, you’ll need to raise again.
If you’re going to raise, go big or stay home.
The good days are behind us when it comes to venture capital. SaaS companies need to show profitability just like any other business, and the average company is going to get valued based on the business fundamentals, and even high growth startups aren’t going to see the kind of valuations we saw in 2021.
It’s better to pretend that there is no such thing as VC. Bootstrap your way to product-market fit, generate cash from customers, and run a tight ship.