A Founder's Guide to Fundraising.
- Reece Warren
- Feb 28
- 5 min read
Part two.
What are the 3 key mistakes that Founders make when approaching investors?
In our last blog post, we discussed the key 3 ways that Founders can distinguish themselves when pitching to investors.
And as we said at the time, approaching investors can be a pretty daunting task because asking anyone for cash at any time in life is rarely a comfortable experience, right?
So after heading down to a recent event hosted by Futurum at the DIFC Innovation Hub, we got to hear directly from some of the leading investors within the region (links shared at the end of the article) about the key 3 mistakes that founders typically make when engaging with an investor.
1 - Pretending to be someone that you aren’t probably isn’t a good idea.
Let’s be honest - we’ve all had a cheeky Google at one point in our life about ‘how to successfully pitch’. Whether it’s binge-watching Dragons’ Den/Shark Tank, researching Jordan Belfort or getting sucked into one of these weird LinkedIn articles that keeps being suggested to you.
And, for some reason, most of these sources convince you that the best way to pitch is by being some cocky, immovable force that sh*ts rainbows and can do no wrong in business.
According to the panel, this is one of the biggest misconceptions that Founders have when approaching investors and this approach rarely ever works.
Why? Because they’re incredibly talented at smelling bullshit.
Investors, in their view, would much rather work with a Founder who admits to their weaknesses and challenges because most investors often want to give far more than just capital to their investments - they want to share knowledge, resources and their experience. In fact, it makes the journey more fun for all of you. Plus, to be blunt, it makes them feel that you as a founder far more trustworthy than the people that are quite clearly lying/acting just to raise cash.
For example, it’s completely fine if a competitor product already exists - the key is to have an open and honest discussion about why don’t you like the way that other business is solving the same problem you are and, most importantly, how you’ll learn from their mistakes and build something much better.
TL;DR - striking a balance of authenticity, humility and confidence is the absolute key when it comes to pitching to investors.
-
2 - Relationships, relationships and more relationships.
For this particular point, I’d like you to imagine something for me.
You’ve walked into a restaurant for a first date. You’ve sat down with your date and your attraction to them is strong. You’re excited because you know you’re both there because you’d like to explore the connection.
In this exact scenario, would you ever start the date by asking the other person to buy you a drink OR telling them your full life story without them asking?
I’d really like to think that you wouldn’t, right?
So with this in mind, why would you start a conversation with an investor by either asking them straight up for cash or pitching your business before they’ve had time to even introduce themselves?
Investors are normal people that tend to manage funds but that doesn’t mean that they’re a walking bank account but, to my surprise, one of the most common mistakes that Founders make is rushing too fast into business, requests or pitching before properly getting to know the investor to see what common ground they have.
So the advice is simple:
Do your research on the investor before the conversation to show that you don’t just see them as a walking-talking purse.
What mutual connections do you have? Who do you know that they know? Could this mutual connection help your conversation go smoother?
Get to know the investor as a person before you rush into demanding capital. What companies do they typically like to invest in? How long have they been in the investment world? Why not do an easier job to have a less-stressful life?
TL;DR - people buy from people and it’s critical that you approach an investor as such. Make small talk, show you’ve done your research and treat them as a normal person at all times as opposed to a human-cash-cow.
-
3 - Time, patience and understanding.
Firstly, if you don’t have 24 months runway then you should be fundraising.
Yep, that’s right, 2 years.
Despite that seeming like an incredibly long time, the reason for necessitating fundraising so early is simple - raising cash can take a serious amount of time (especially in the current economic climate).
It’s absolutely critical to understand that it’s incredibly rare for an investor to commit to giving you capital unless a number of conversations have taken place over an extended period of time. According to the panel, it typically takes 5 conversations (at a minimum) to even verbally commit to offering cash (which then activates the due diligence process which can take months).
The key is to fundraise early and to exercise patience at every given opportunity because, in short, if your business is going to be so great then why is there such a huge rush to get this investment over the line and why have you left fundraising to the very last minute?
The final point to consider in this particular section is that investors can be notoriously slow at making decisions because parting ways with their cash is usually a difficult thing to commit to. With that said, it’s easy to get frustrated with the waiting and to let emotions get the better of you by sending not-so-friendly messages or having less-than-warm conversations.
But please remember one thing - investors love to regularly chat to one another about all things investments. As the old expression goes, it’s a small world and they regularly communicate via their WhatsApp groups, Slack groups, meetups which means they’ll typically talk about the same things every time…
The good founders they’ve met, the great founders they’re about to invest in and (especially) the impatient founders that get hostile at the first sign of delay. Don’t put yourself in that third category because, if you do, you could be at risk of harming your fundraising chances not only with one investor, but multiple.
TL;DR - understand that fundraising takes time so start the process early and demonstrate as much patience and understanding as you possibly can because you could end up burning more bridges than you think.
-
So, to surmise this not-at-all-lengthy blog post, here’s the key advice we have for anyone approaching a VC:
Be yourself in the most genuine way possible.
Do your homework before meeting investors and, most importantly, treat them as human beings rather than a walking-wallet.
Don’t take no for an answer - they want to make money just as much as you do so really hammer home to them how you’ll make both of you super wealthy.
-
Raising capital is a seriously challenging task for anyone so, hopefully, this article will help make your lives slightly easier when it comes to navigating such a tricky world. If you’d like any additional support, feel free to contact me directly via LinkedIn.
A massive thank you to Karina Burmistrova for hosting this event with Futurum and to the panel for sharing such valuable insights - I’d highly recommend keeping an eye out for any future events that they put together as they’re incredibly useful for founders of businesses at all stages.
Be sure to check out the panelists links below here:
Comments