Hi, everyone. This is Alejandro Cremades, and today we’re going to be talking about
the common mistakes that entrepreneurs make when fundraising. Fundraising is tough; it’s
challenging, and also, if you do not understand the story well, the process, and how to fulfill
concerns, there are always going to be common mistakes that you’re going to be making.
So, the idea of today’s video is to give you an understanding of what those typical
mistakes are that entrepreneurs make in the journey of raising the money, and how to avoid
them. With that being said, let’s get into it.
One of the mistakes that I see is demanding pricey valuations. Essentially, going out
to market with a valuation that may not really adjust to what the market is paying. I think
if you go out either with a valuation that is off-market, meaning that your competitors
are raising maybe half of that or much less than that, then you’re putting yourself
in a position where the expectations are going to be high, and it’s going to be very tough,
and you’re sending a signal where you’re not really sure or know what you’re doing.
The same comes with the amount that you’re raising. If, for example, if you’re in New
York, or you’re in San Francisco, and you’re doing a seed round, and you’re raising $500,000
rather than the average $2 million, then already you’re telling the market that you’re
underfunding yourself. So when it comes to numbers and also valuations,
make sure that you’ve done your homework and take a look at some of your direct and
indirect competitors so that you have an understanding and have some type of benchmarks in pricing
your round. The next common mistake is negotiating against
yourself. The last thing that you want is when you are, let’s say, out there; you’re
speaking with investors, and then all of a sudden, the question comes around, “What
is your valuation? Have you thought about your valuation, or what kind of valuation
are you thinking for this round?” The mistake that entrepreneurs always make
is talking first. You do not want to throw out a valuation because what’s going to
happen is, let’s say, if you say an answer like a $50 million valuation, then the investor
is probably going to tell you, “Well, we think this is $10 million.” They’re going
to negotiate you down. So, try to shift it around. Try maybe to answer
to that saying that you’re seeking some partnerships here rather than negotiating
where, in a negotiation, there’s always someone that loses and someone that wins.
You want this to really be a successful partnership where everyone wins. And doing that, you’re
actually asking them to throw in their valuation so that you don’t have to talk.
With that being said, when they throw the number, essentially, if they say $10 million,
maybe you negotiate them up, and you throw $15 million, and maybe you meet in the middle.
So, by them speaking first, you’re really saving yourself the opportunity of negotiating
them up rather than them negotiation you down if you’re talking first.
The next mistake or the next common issue that I find on entrepreneurs is not building
a network. Building a network is critical. Fundraising is all about building trust with
the parties that are potentially going to be interested in investing in your business.
With that being said, you want to make sure that you’re building your network way before
you actually need the money. A good way to do this is taking a look at who are the investors
that have been very actively investing in your segment for the past 12 months, and perhaps
you grab those indirect competitors that have received an investment from that investor
in the last 6 to 12 months. You ultimately use them as a way to get your
foot in the door, to get into the circle of trust, and to reduce the amount of time that
it takes from the first touchpoint to money in the bank. That is how you build your network.
You can also do so by going to conferences, but really there is no excuse for not being
able to get in front of investors because right now, we live in a world that is super
connected, super transparent, and you can see at all times who is investing in what.
The next common mistake is pitch decks. Storytelling is everything when it comes to fundraising.
You want to make sure that you have an amazing pitch deck that, in 15-20 slides, is “capturing”
the essence of your business. Again, below, you’re going to find a pitch
deck template that you can just grab and use for yourself. But, essentially, storytelling
is really what is going to make it or break it. Remember that, on average, investors only
spend 2:41 (two minutes and 41 seconds) per presentation. That’s it.
They’re just going to be skimming through it, and then at the end of it, they’re going
to be able to really understand if you’re going to be worthy of another meeting, or
even a first meeting or not. For that reason, you want to make sure that you follow a really
good flow, a really good structure, and that you keep the balance between the amount of
visuals and the amount of text that you use. Typically, for sending emails with a presentation,
you want to have it a bit more robust in terms of content. And if you’re pitching at an
event or a conference or maybe even in front of the investor, you want that presentation
to be more on visuals and less on text so that you can keep the eyes on you, and they
can connect with you because that connection is super important.
The next common mistake is not selling yourself. At the end of the day, we are all walking
brands. If you take a look at a company like Facebook, that’s Mark Zuckerberg; Apple,
that’s Steve Jobs; you’ve got to sell yourself. Again, this is sales. Fundraising
is sales. You need to keep an airtight process, and
you need to really know where every single lead and every single prospect is in that
pipeline. And you need to pipeline and pipeline and walk them from one phase to the next phase
because, really, it’s all about going from intro to money in the bank.
Your real intention or the way that you should aim at doing this is that every single interaction
with an investor that you have needs to have a call to action. Forget about the “Let
me know what you think,” or “Look forward to your comments.”
You’ve got to always finish every single interaction with, “Are you available next
week or the following for a catch-up meeting.” Because you’re going to be following up,
you’re going to be following up with exciting updates on the team, press mentions, milestones,
so every follow-up that is adding value. Make sure that it’s really ending with a
call to action to get you to the next meeting because remember that fundraising is all about
addressing concerns. The more meetings that you get, the more concerns that you’re able
to resolve, and the more concerns that you resolve, the closer that you are to the money.
The next common mistake is non-disclosure agreements. The NDAs, at the end of the day,
and this comes from me that I’m a recovering lawyer – you know, still seeking therapy
– is that at the end of the day, an NDA, you’re not really going to be able to enforce
it because it’s always subject to interpretation. I find that those entrepreneurs that just
for having an introductory meeting with an investor, and they go with the NDA, you’re
going to essentially tell the investor that you’re a rookie and that this is the first
time you’ve done it. You are only pulling the NDA card once you
have gotten that interest from the investor, and things are progressing well enough into
a due diligence process where they’re going to have access to sensitive information. Until
then, refrain from putting any type of NDA in front of them. You want to make the process
frictionless, and you do not want to add more friction to the actual process.
The next common mistake is, obviously, not connecting on a personal level. Every single
first meeting that you have make sure that you have researched like, “What are they
tweeting about? What kind of groups do they follow on LinkedIn or maybe on Facebook?”
Maybe they went to the same college that you did, or they are supporting the same sports
team that you’re supporting. Essentially, on every goal, the first goal,
you want to build that background relatedness. You want to connect at a personal level and
really see you as that individual that they’re going to have fun, maybe like having a drink
outside of work because this venture capital firms, specifically, or any type of investor,
they want to do business with people that they enjoy and that they like.
So, with that being said, don’t go straight into the pitch deck, into the business discussion.
Try to keep it personal at the beginning, and then naturally, it’s going to smoothly
transition into the business talk. The next common mistake that I see is not
focusing on the network behind the money. At the end of the day, it’s not about the
money. You’ve got to turn it around, and it’s all about the network that that individual
that is giving you the money has because you’re going to be able to leverage that network
to achieve your milestones much faster, whether that is for distribution, business development
deals, partnerships. You want to have investors that are adding value.
Again, remember, that I know that you need the money today, but right now, like getting
the money from someone that is not going to be getting you type of activity, that type
of value, ultimately, what you’re doing is you are putting a band-aid on an injury,
that’s it’s going to require surgery later on. So, make sure that you’re accepting
the money from the right investor, and also that that investor is in it for the right
reasons. The last mistake that I see that is very common
is not being familiar with the terms. You see entrepreneurs that just want to get it
done very quickly; they don’t review in detail with their corporate lawyer, the structure,
and what some of those clauses really mean. Unfortunately, in many instances, maybe one
of those clauses doesn’t mean much to you now, but perhaps in five to ten years, that
specific clause can get you kicked out of the business.
So, for that reason, you want to have a lawyer that is not a family lawyer, or your cousin,
or your uncle. It needs to be a corporate lawyer that has done rounds of financing many,
many times, and that can have your back and explain to you and walk you through what everything
means. With that being said, hopefully, you like
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Also, don’t forget to take a look at the fundraising training, which is the program
where we help entrepreneurs every step of the way from A all the way to Z with everything
related to fundraising. We have live Q&As, templates, agreements, a community of founders
all over the world helping each other, and I think that you would find tremendous value
in it. Thank you so much for watching.