❗The Ultimate Recipe of Fundraising Failure: How startups founders ruin their chances with investors?! ❗
I pitched my first startup at Google’s HQ in Silicon Valley back in 2016 after winning a seed fund from pitching in Injaz Egypt Startup program. Between 2017–2021 I was a director of tens of entrepreneurship programs such as Global Entrepreneurship Week, Academy for Women Entrepreneurs, Women Entrepreneurship Camp, etc.. all working on training and mentoring early stage entrepreneurs in Egypt and connecting them with the resources and the network they need to start. During that time I was lucky to get involved with at least 500+ entrepreneurs and I enjoyed working closely with them on launching their business and helping them specifically in preparing their pitch deck to land an investment.
This article is NOT about what are the best practices for early stage founders to raise fund. It is about the ABSOLUTE WORST THINGS they can say to ruin their chances!
Disclaimer 1: This applies mainly to early stage FIRST TIME founders because in my experience I noticed patterns where early stage founders have a track record that gives them an easier path to raise their pre-seed & seed rounds!
Disclaimer 2: These are not the only things, but they sure are some of the worst deal breakers!
1. We have 1st mover advantage & no competition:
- WHAT YOU SAY:
We have no competitors so we will dominate this market easily and make you rich.
- WHAT THEY ACTUALLY HEAR:
a) We didn’t bother to look at who is the “best next alternative” or in other words how to do our customers solve their current pain points with indirect competitors
b) The right timing for this startup to work isn’t now because obviously no other investors are putting their money in it
c) Our problem doesn’t have a market. We’re going to have to educate the market and use your money in laying the groundwork for competitors who will come after us.
- WHAT YOU NEED TO KNOW:
It is okay to not be the first player in the market, in fact it can be a sign for investors that other investors are willing to put their money in this. Just make sure there’s no dominant player yet!
2. We target gaining 1% of our massive market:
- WHAT YOU SAY:
Our market has 100M users and is worth 1B USD. Just imagine if we acquire 1% of it by 2023 what will valuation/revenue will be like!
- WHAT THEY ACTUALLY HEAR:
We are pursuing ANY direction that COULD hopefully work because we still have no clue what our product/service is solving exactly for which customer persona or market segment and instead of being focused we will use a “growth at any cost strategy” with your money to figure it out before our runways ends.
- WHAT YOU NEED TO KNOW:
In most cases of early stage startups you should aim to own 100% of a niche of the market even if it’s a temporary go to market strategy that is being tested and validated. Always have a low hanging fruit in terms of market niche to get your quick wins in! (I remember hearing this from a founder I met at 500 startups office at San Francisco)
3. We have 1M installs but no paying customers yet; our valuation is 5 Million USD!
- WHAT YOU SAY:
In our first few months we’ve had 1M installs and we’ve seen exponential week over week growth so we value our company at 5M USD. We don’t have paying users yet but we are the next big thing in our industry!
- WHAT THEY ACTUALLY HEAR:
We have users but we have no clue how to monetize them yet. We are highlighting poor metrics such as installs instead of activated or paying users because we have nothing more solid or tangible to highlight that validates our inflated valuation which has no proper benchmark.
- WHAT YOU NEED TO KNOW:
Startup valuation is more of an art than a science especially in early stages, but you need to read my next article about pre-revenue and post-revenue startup valuation and look at the benchmarks of similar startups in your industry and market to validate the valuation you propose. (or at least back it up with traction in revenue and not only in installs or sign ups)
4. We have a product roadmap with that includes integrating AI, AR, VR & Blockchain in our product!
- WHAT YOU SAY:
We have an amazing product roadmap that will give us a unique selling proposition and form a barrier to entry for other competitors.
- WHAT THEY ACTUALLY HEAR:
We are hiding behind these buzz words that are far from early-stage startups capacity and funding because we are not sure of the core value proposition of our solution and how it helps our customers to the point that they pay for it.
- WHAT YOU NEED TO KNOW:
Don’t hide behind “features mania”. Focus on the core offering, validate the MVP and build the product as you go with the customers need you uncover.
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These are just 4 of tens of other deal breakers that I might share in future articles but to be honest a lot of them we will have to learn by experience, there’s no way around failing every now and then with potential investors!
And failing with some investors is not entirely bad, not every investor is matching to the needs of the stage your startup is at. Maybe I’ll write an article on this in the coming weeks!
