6 Startup Fundraising Myths You Should Stop Believing in 2021

Posted by Elisabetta Ferri on Jul 05, 2021 08:08: AM
Elisabetta Ferri

Funding a startup company is no easy task. There are various things to do and consider to make your business successful.

Still, most young and inexperienced entrepreneurs think that getting funded is the fastest and safest way to succeed. 

And as a result, they spend most of their time developing their pitch deck and pitching to many investors.

But before preparing to get funded, you must first understand the truth behind a few of these popular funding myths.

In this article, I will help you unlearn the existing startup fundraising myths this 2021.

6 Startup Fundraising Myths

There will be no shortage of people willing to offer you significant advice when raising funds. 

Unfortunately, much of this information is incorrect.

Well, not wholly incorrect.

Most startup advice, like most myths, contains a bit of truth, but you must know when to apply this advice and when to ignore it.

Here are 6 of the most common startup fundraising myths to unlearn this 2021.

 

1. Perfect and tailor your pitch to each investor

Some experts advise personalising your pitch for each investor. You only get one chance to impress each investor, so make it count.

However, being prepared does not mean being perfect. The sole purpose of your deck is to attract investor attention and get to the next meeting, and customising each deck for each investor is not worth it.

Tailoring your pitch is good to emphasise your fit with the investor's focus. However, don't pitch each investor a separate business. 

You want them to believe in your company's vision, not the one you think they'd like to see. Otherwise, your post-closing board meetings are going to be a bumpy trip.

2. You have to be in Silicon Valley to get the best funders.

It's no secret that Silicon Valley offers more resources for starting a business than any other region in the world.

As a result, this region has produced many of the world's fastest-growing companies and has merged as the preferred location for technology startups. However, you don't necessarily have to be in Silicon Valley to get the best funders. 

Even before the pandemic, the need to be physically present in Silicon Valley is fading. Physical location no longer matters now that we've all had a collective crash course in doing business virtually.

3. Funding is synonymous with success.

Although having capital is highly beneficial, not every successful business seeks it, and not every company succeeds in the long run.

Most startups consider funding to be a success, but investors who put money into a firm do not make it succeed; instead, they help the business develop.

Please don't go looking for outside funds because you think it'll impress others or get your business attention. Management ties and performance pressure are common with funds from VCs or angel investors.

Instead, consider whether you need money and whether you've exhausted all other options, such as bootstrapping, bank loans, loans from family or friends, or revenue-based funding.

Take note that most businesses don't take institutional funding, and you shouldn't define your company's success through the amount of money raised.

Also, keep in mind that you and your employees make your startup successful, and it's you that builds a solid foundation on which to gain profits. 

It's tempting to increase the business with money, but the most important thing is to use it correctly.

4. Getting funded by an "A-list" firm is key

There's no such thing as the "best" venture capital providers. What matters is finding a funder that is a good fit for you, both in value and networking and mentoring. 

Is there someone on staff that you could learn from? Are there any organisations in their network with whom you could collaborate?

These characteristics are more important to your success than having a well-known corporation sponsor you.

5. Everybody has an equal shot at getting funded

One of the hardest pills to swallow is that not everyone has a fair chance at success, and not everyone has an equal shot at receiving funding.

Although the venture capital industry portrays itself as a pure meritocracy, the reality is quite different. 

The people you know, your connections make it different. If you look around, you'll know that most venture capitalists are white, straight, cis-gendered men who went to Ivy League schools.

And, like the majority of us, their social networks are highly skewed toward persons with similar backgrounds, not to mention the subconscious effect of familiarity bias when they're listening to pitches.

All of this adds to alarming statistics about women, people of colour, and LGBTQ people winning venture funding.

Fortunately, the diversity problem in venture capital is now well acknowledged, and there's an increasing number of funders who make diversity and balanced representation clear parts of their purpose.

Most funders still have work to do in this area, but what began as a niche trend is gaining mainstream momentum.

6. It would be best if you never give up half of your company

If you're taking money from investors, you'll probably have difficulty getting the right amount of funds without giving up some control. To avoid a 50% or higher mark, you must discover a fair and equitable valuation for all stakeholders.

Understand that there are numerous ways to arrange investor money and keep a greater valuation, so be aware of your options and seek advice from a professional when creating your term sheet.

If you expect your startup to be a huge success, you may find yourself with a large amount of money that you won't be able to lay claim to.

So when you have an offer on the table, go over the details carefully to make sure the level of ownership the investor wants doesn't interfere with your capacity to generate a profit.

Summary

These are six myths that are so common that you'd assume they're true.

However, like other myths, they contain a bit of truth, and if you don't grasp when they are accurate and don't, you can get yourself into trouble.

Keeping these guides in mind and understanding the reality behind many of these myths can help you set the proper expectations when seeking funding and help you obtain the resources you need to grow your startup much more effortless.

However, if you have any questions regarding your startup, you can contact us by scheduling an appointment with us today.

Rest assured that someone will get in touch with you to answer all your questions.