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Fundraising is probably one of the hardest experiences any entrepreneur can go through. No, scratch that–it’s definitely the hardest. Raising money for your business is messy, humbling, exhausting, demoralizing, scary, and intense. I did this myself at the end of 2015, and it gave me incredible appreciation for those who’ve done it several times on a much bigger scale.
Luckily, I was surrounded by experienced fundraisers who gave me invaluable advice. I learned a few eye-opening things about how and why people invest, including:
1. You can raise money with nothing but an idea and your reputation. Literally.
2. Very few people actually go through your financial model in the beginning, because the numbers are all basically made up.
3. Never bank on an investment until the money is wired over.
The advice I got early on helped me avoid a few key mistakes, which I’ll talk more about in subsequent articles on Medium and LinkedIn. In the meantime, we asked a few seasoned CEOs what they believe are the biggest blunders people make when they go out for cash. Watch what they say in this video below and read on for some of their answers.
- Raising money when you don’t need it. International entrepreneurship guru and Vaynermedia founder Gary Vaynerchuk says that there’s an epidemic of people raising money just because they think it looks good. Vaynerchuk goes on to say that people foolishly celebrate any investment without fully realizing that they’ve just given a chunk of their business away to outsiders. Instead of focusing on making profits and creating a real business, entrepreneurs look at a pile of checks from big-name investors a mark of success. Wrong.
- Raising too little. Mellody Hobson, the President of Ariel Investments, says that entrepreneurs often underestimate how much money they need. Entrepreneurs are optimistic creatures by nature; this can leave them unprepared cash-wise when things do not go as perfectly planned. Hobson has a simple solution to this all-too-common problem, which she talks about in the video above.
- Expenses = success. I’ve heard this many times myself. Many potential investors have asked about our “burn rate”–the speed with which we spend money above and beyond our income. For some, having a low burn rate is good, as it gives them ample time to really refine their product and find market fit. For others, having a low burn rate suggests that they’re not growing fast enough or investing enough in their product to scale it properly. Each viewpoint has its merits; but oftentimes, entrepreneurs feel so pressed to show growth that they burn too much too fast. “The biggest mistake is thinking that you need to have expenses to show progress,” says Scott Galloway, a serial entrepreneur and NYU professor who’s gained a reputation for telling it like it is. In other words: In an attempt to show that you’re growing fast, you might end up going out of business. Fast.
Read more >> Inc.