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7 Common Mistakes When Raising Capital
Here are some best practice guidelines for raising capital. We have listed 7 common mistakes to avoid when raising capital:
1.Family and Friends
Keep these investors to a minimum. Having a large list of friends and family on your share register is not always a good idea. Firstly, it does not show any confidence to external investors that anyone outside of your inner circle has risked their capital.
We have also seen situations arise from unrealistic valuation expectations from family and friends the moment an external investor becomes interested. This often leads to killing the deal.
2. Trying to do too much with too little
Don’t try to create a product that has all the features, bells and whistles imaginable. Start with a Minimum Viable Product (MPV) with a few features. Launch your MVP and get some free users, free trials, a few paying customers and some traction and validation.
This is the approach investors want to see from early stage start-ups. Keep it simple and manageable. Raise capital to help you reach your next milestone.
For established companies, it is important to demonstrate your achievements to date, and outline how you are capital restrained. A key strategy and plan on how you will use the funds to reach your next milestone is important.
3. Wrong Team
Your team is one of the most important deciding factors for investors. It is more important than your product! Make sure the people you have in your team, including external advisors make strategic sense to the business.
4. Pitch Deck presentation missing key areas of interest.
It is important to cover the key topics in your pitch deck. We have a template pitch deck here to help you. Try to keep your pitch deck to no more than 15 pages. When applying to funding with Shape Capital you do not need a fully polished pitch deck. Dot points are fine. If successful, we will help you polish your pitch deck and get it investor ready.
5. Business Plan & Strategy
Companies that have no strategy will find it hard to raise capital. Have a clear plan on how much money you need, how you will use their funds, and the milestones you need to achieve. You don’t need a 100 page business plan, you can use our 1-Page business plan template here for free.
6. Valuation Expectations
Valuation is a sensitive topic for both founders and investors. The fastest way to insulting both sides is to get this wrong.
Avoid comparing the valuation multiples of large public listed companies as your benchmark for valuing your start-up business. These large listed companies have had a dozen funding rounds and have large revenues and are often profitable.
Don’t follow the headlines. Just because a company in your industry has raised capital at a high valuation does not mean you are worth the same amount. There are many factors that do not get reported such as preference shares, options, value of warrants, recently signed customers, etc.
We can assist you with valuation and pricing your funding rounds when you apply here.