5 Initial Funding Mistakes Made by Entrepreneurs
1. Not Being Picky About Investors
The saying goes that beggars can’t be choosers, and you’ll likely feel like a beggar when starting off. It’s human to leap at the first funding opportunity, regardless of any underlying concerns you might have. Sometimes these funding relationships — like any other type of relationship — can be toxic and far more trouble than they’re worth. Maybe you and the investor are on the completely wrong page with no chance of reconciling your difference. It’s a nightmare scenario.
To avoid this, it pays to be picky in the earliest stages of your startup. There’s a fine line between outright stubbornness (bad) and selectiveness (good). Find a balance, so you don’t turn away potential good investors.
2. Raising Way More Money Than Needed
Too much money sounds like exactly the type of problem you want to have. Entrepreneurs who have over funded their startups would disagree.
A quote from entrepreneur Nils Bunger explains why. “Too much capital early in a company’s life can hamstring a company and its options. When you raise a lot of capital, you’re effectively saying you’ve found your business model, and it’s time to scale it,” he told Forbes. “But if you do that before you’ve truly figured it out, you’ll run into a lot of problems because your board expects you to scale the business while you’re still working out what your business actually is.”
It’s hard to say no when people are willing to invest in your company, but it’s best to take things slow. Take the money you need, and work to figure out ways to make your startup the best it can be. It’s harder to solve big problems when you’re growing at a breakneck pace and feeling the pressure to spend all the unnecessary money raised.
3. Giving Up Too Much, Too Soon
Similar to raising too much capital is letting that capital take control of your business. Chris Poelma of NCR Small Business says entrepreneurs often make a crucial mistake with venture capital, but there are ways to overcome it:
4. Wasting Money
Whether you’re flush with cash or still working on funding, there’s always a time and place for some financial discipline. The cliché that it takes money to make money is true, but there are plenty of ways to save money without impacting your business at all.
"Frugality is sometimes incredibly important for startups. I think there's a long history of this working well with the focusing effect of limited resources," Sam Altman, president of the Y Combinator startup incubator, told Business Insider.
So how exactly do you go about saving money? It’s different for every company. One way is to grow within your means and not bog yourself down with too many staff. Hiring smartly is something of an art, but it’s a learnable skill.
Another way is to treat your workplace like you would your home: spend money on preventative maintenance. Ignoring problems — such as energy inefficiency — can be costly down the line. For example, if you’re an industrial startup, you’ll want to ensure your compressed air system is properly maintained because leaks can waste up to 30 percent of a company's energy.
5. Don’t Fear Mistakes
Everybody makes mistakes, whether they’ve launched several startups or they’re trying it out for the first time. If you find yourself committing these funding mistakes, make sure to limit the damage but also learn from your experience.