Dispelling your misconceptions can help you approach the process of fundraising with the right expectations.
As an entrepreneur, you must keep in mind that you can’t fulfill your dreams alone. Be it to scale operations or even just to hit the ground running, startups need investments, and that’s where fundraising comes in. Fundraising refers to the process of seeking financial investment from investors or other sources of capital.
Only 40% of all startups end up becoming profitable, and every decision you take can influence your startup’s chances of success. So, before you jump into the fundraising process, here are some common fundraising myths you should be aware of so that your startup can become a successful one.
Myth #1 Your funding pitch must be tailored to each and every investor
To raise funds for your startup, you would naturally have to approach the right investors and explain why you deserve their funds. Some might suggest that you should alter your pitch deck for each and every investor. In reality, that is not practical. The goal of a pitch deck is to spur interest and convince investors to meet with you.
Of course, it is crucial to align your presentation with the investor’s point-of-view. However, if you make far too many changes in each pitch deck, it will seem like you are pitching different businesses to each investor. Your prospective investors may talk to each other and, thus, might end up being confused about what your business actually does.
Myth #2 You need a venture capitalist partner to succeed
It is tempting to believe that venture capital (VC) is the sure-shot way to guarantee your startup’s success, but this is not the case. A VC is a private investor that provides capital to a company in exchange for a stake in it. While private equity mostly invests in large control stakes in mature companies, the same is not true for a VC investment. Before you approach a VC partner, you need to develop a minimally viable product (a product at the early stage of development that is tested on a customer base). Once you finally approach a VC, you must remember that getting funding from them will dilute equity (which reduces a startup’s earnings per share).
Moreover, there are other ways to raise funds for your startup. These can include government funds or subsidies and incubation and acceleration programs. You must be diligent in figuring out what fits your startup’s needs the best.
Myth #3 You need to be in Silicon Valley to gain access to the best investors
The need to be physically present in Silicon Valley to get the right investments has been fading over time. With the COVID-19 pandemic, most businesses have now learned how to work remotely, making it all the more unnecessary to fundraise at a physical location like Silicon Valley.
There are better places to get your startup up and running beside the United States. For instance, Israel, which ranks number one in terms of startups per capita and could be a good fit for a new business as well. The United States only ranks tenth in the world in terms of startups per capita, with Israel leading the way as number one. Moreover, going to Silicon Valley does not automatically guarantee you success and it could even demotivate you. CEO and co-founder of InnovaLab, Reinaldo Normand, says, “…competing in Silicon Valley may be extenuating and frustrating because it looks like everyone is smarter or more accomplished than you.”
Keeping yourself in the know about these myths and the startup space, in general, is a must to set yourself up for success. Knowing exactly what to expect when you approach investors will smoothen the fundraising process.
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