I don’t know a lot of things. I do, however know a thing or two about how to raise money for a business the wrong way as I have operated in the middle of the table on quite a few occasions. If you are wondering where the middle of the table is that a fair question. The middle of the table is where you are putting two parties together and you are acting as a conduit to make the deal happen. A deal-broker to some degree if you want to call it that.
I have also had five businesses over the last twenty-one years in which I was on the side of the table that was in search of the investment (the asking side)… and I have made countless mistakes during that process. This is one of the main reasons why Gary and I started this blog, as we wanted to provide advice for entrepreneurs who may not know where to go or what to do. Though we eventually were able to secure the investments we were looking for, it was not without some very hard lessons learned along the way. It is also important to note that probably the biggest mistakes is not understanding the difference between finance and capital, which is very important to know when looking to raise money for a business .
The following are 5 prevalent mistakes entrepreneurs make when they raise money for a business the wrong way.
1) Ideas Don’t Cut It
The most important thing to understand is that investors do not fund ideas. Many entrepreneurs make the mistake of thinking that they will get their company funded on their idea alone. This is one of the biggest misconceptions entrepreneurs have when raising money for a business. Funding startups on Ideas alone are very rarely funded without various other factors taking place that makes the company attractive for investment.
2) No Revenue
Trying to get a company funded with no revenue is extremely difficult. One reason is that if an entrepreneur’s idea is worth their salt, the investor wants to see them gather revenue to show proof of concept and market viability. They also want to see that the entrepreneur is not looking for them to do all the work.
3) Valuation Too High
Many entrepreneurs don’t understand the concept that 20% of something is worth a heck of a lot more than 100% of nothing. Often times, offering higher equity to a potential investor or strategic partner is better, as it creates more of a vested interest in the company succeeding when the investor has more equity.
4) Focusing Too Much On The Cash
Another one of the common mistakes in business that many entrepreneurs make when trying to raise money for a business is not taking the many other things that are relevant in order to make a business succeed. Entrepreneurs will look at the cash alone when the real secret to the success of most businesses lies in the value of strategic partnerships. Money alone quite often is not enough. In a strategic partnership, the entrepreneur uses the resources and expertise of their strategic partner to leverage their strength far greater than any amount of cash can cover.
5) Looking for an investment too early
Many investors and VC’s will tell entrepreneurs that the product or service is too early in development for them. One example is a technology company that doesn’t have the technology prototype ready and is looking for the investor to fund the prototype. The problem is there is far too much risk involved. I was in the middle of that one about a year ago and it was not fun. Another example is trying to sell a fashion brand without making samples. These two examples are great places for pursuing startup capital or seed funding. Seed funding will allow an entrepreneur to get the necessary things done in order to put themselves in a position suitable for investment.
I have seen the above five mistakes first-hand, some that I made myself, and the rest (like I said) sitting in the middle of the table. I think that if you can avoid these mistakes you will greatly increase your chances of succeeding in securing the investment you are looking for.
IMPORTANT NOTE: If you want to explore a more in depth look at starting a business and raising money, Gary and I have shot 4 FREE product training videos that we have created that provides a much deeper and comprehensive look into starting a business. To visit that section, click here now.