3 Mistakes to Avoid When Seeking Investor Capital

An experienced investor lists blunders to avoid and five ways to attract investment.

 
Written by Robert Gold

Convincing investors that your startup is worthy of their dollars is no easy task. With funding capital scarce and the ranks of companies seeking investment legion, your firm needs to beat out plenty of competition to win the favour of venture capitalists. But it’s not enough to have a better product or service than your rivals. Flaws in your strategy or execution could also cost you a chance at funding.

Matthew Castel should know. The Head of Strategy and Global Macros at Logos LP has been on both sides of the financing table. Castel cautions that attracting capital requires patience. “No matter how good your business or investor pitch is, securing investment often takes months and sometimes even years,” he notes.

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To get investors to buy in, you have to sell them on your business. “Attracting investment capital is a social practice—it’s about a telling good story,” Castel says.

But if you’re not careful, you can forfeit any chance to securing financing even before you make it into the room to give your pitch. Here are three mistakes that many startups make when seeking investor capital, and how to avoid them:

DON’T BE HASTY

Castel points out that taking on capital runs counter to one of the most important goals of launching a startup. “Ask most entrepreneurs why they started company, and I think most would actually say €˜freedom,'” he suggests. “So the question is, why are entrepreneurs often in such a rush to give away that freedom to an investor who will have goals of his own?”

Trying to raise capital is an important way to evaluate the value of your startup, of course. Convincing an investor to back your business with their dollars validates your idea and shows the world that your concept is worth paying attention to. But it can also hold you back. “Fast-tracking your way to raising money often can strip away your ability to learn and make mistakes,” Castel cautions. “And with larger sums of other people’s money on the line, your decision making is going to be influenced.”

Castel suggests taking a more patient approach. “I’d say bootstrap for as long as possible,” he suggests.

Watch your words

It’s a small world after all—most major Canadian investors are connected, and word travels fast in startup circles. That means it’s much harder to hide a flawed business plan, or worse, an entrepreneur with a bad attitude. “It’s kind of amazing how small the startup community can be in a city like Toronto, and so a good reputation can go a long way,” warns Castel.

“I find that founders and capital-raisers don’t stay humble and they don’t guard their reputation enough,” Castel says. “If you build a reputation for rudeness and unreliability, you actually end up shooting yourself in the foot.”

That extends beyond the pitch room. Your dealings with customers, suppliers, investors and competitors will shape the business community’s perception of your startup, so exercise caution at all times. “You’re a representative of your company, so you should always be aware of the image you’re trying to project,” Castel suggests.

Be social

Social media may seem like the preserve of consumer-facing companies and technology firms that want to hype their new offering. But Castel says too many startups underestimate the value that being social can have on their valuation. “If a company can implement a well-executed social media strategy, then can actually grow their business and eventually increase their valuation,” he says.

The well-known benefits to using these platforms are worth reiterating. “Social media allows you to raise brand awareness, helps you grow sales and enhance your company’s industry reputation, and improves your customer service and satisfaction,” Castel says. “But more importantly, it can help you to broadcast your company’s success story.”

You need to use social media to communicate not just to promote your products or engage with consumers, but to sell your brand as a whole. “Let people know about the milestones that you’re hitting, or the PR that you’re generating,” Castel suggests. “Investors want a window into the soul of your business.”

So much for the mistakes you need to avoid. For Castel’s five ways to attract investors to your startup, listen to this week’s BusinessCast by clicking the button above or download by clicking on the iTunes logo below:

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What other mistakes and blunders should startups avoid when seeking investor capital? Share your experiences using the comments section below.

Originally appeared on PROFITguide.com

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