There’s a lot written about what you should do when you raise money, but there hasn’t been as much written about the common mistakes founders make. Here is a list of mistakes I often see:
Over-optimizing the process
A lot of founders try to get way too fancy with tricks that they think will help them raise money. It’s actually quite simple; if you have a good company, you will probably be able to raise money. You’re better off working to make you company better than working on fundraising jiu jitsu.
The process is simple:
Get intros to investors you want to talk to and reach out to them, in parallel, not in series – this is important, see (3). Explain to them why your company is likely to make them a lot of money. This usually includes the company’s mission, the product, current traction, future vision, the market, the competition, why you’re going to win, what the long-term competitive advantage will be, how you’re going to make money, and the team. Set up a competitive environment. You’ll (unsurprisingly) get the best terms when multiple investors compete with one another for space in your round. This is the one rule of “the game” that is really important–I’ll talk about it more later on. Some founders try things like carefully timing news articles, casually mentioning to one investor that they’ll be having dinner with another investor, claiming their schedule is really packed except for one specific hour, and other tricks – but if you just build a good company, you generally won’t need to.
Many little things simply don’t matter very much–for example, the “signal” sent when an early investor chooses not to participate in a later round. If the company is doing well stuff like this is easily overlooked, and if the company’s not doing it will struggle to raise money anyway.