Founders often make a presumptuous mistake when attempting to raise capital for their startup: they assume investors will fall as head-over-heels in love with the merit of their idea as they did.
It’s never that idealistic. There are a number of factors that founders need to consider when preparing for a capital raise, and it begins with putting yourself in the investor’s shoes.
In this entry, I'll outline some of the most common reasons startups fail to raise capital.
1. Bad marketing materials
While it's forgivable to have disheveled marketing materials in the early days when you’re asking Uncle Joe for a few bucks, seeking professional seed capital requires marketing collateral of professional quality. This means custom art, obsessive grammar checking, and a simplistically beautiful layout that tells the story of your startup and where it’s headed next.
2. Pitch is overly complex
Investors don't live and breathe your industry like you do, so make sure that your pitch is clear, concise, and easy-to-understand for laymen. Remember: people pay a premium for deals that are tough to duplicate and easy to understand.
3. Sector is out of favour
It can become increasingly hard to raise money when your sector falls out of favour with investors. However, founders should view challenging market conditions as an opportunity to set themselves apart from their failing competitors—the cream always rises to the top.
4. Venture isn't differentiated enough
The average angel investor sees hundreds of deals a year. For them to want to invest in your startup, your venture has to look, feel, and be different than everything else before it. Do everything possible to show how your venture is unique, and how being unique can potentially translate into a strong ROI.
5. Didn’t provide near-term milestones that could justify a rerate in valuation
Investors need to see a near-term opportunity for a return on their investment if they're going to invest in your company. The clearest and most effective way of doing this is by identifying company milestones that could lead to a rerate in valuation, such as the commercialization of your technology.
6. Failed to educate the audience
Your pitch should provide a crystal-clear explanation of the problem your startup is trying to solve and the opportunity it aims to seize. If investors are left asking “Why?” or “How?” after your presentation, there is something fundamentally wrong with your pitch.
A Capital Raise Comes Down To Preparation
Some of the most memorable capital raises I've been involved in were led by founders who understood the importance of details—whether it was a visually engaging pitch deck, the way they differentiated themselves in an oversaturated market, or how they effortlessly answered hard-hitting questions. In the end, their success came from being exceptionally well prepared.