The 10 most common misconceptions about startup funding

Entrepreneurial success requires ambition, dedication and a lot of perseverance. However, the key ingredient that ultimately makes a business sustainable is money. Funding a startup company is easier than people think. This is largely due to the many misconceptions about what finance really means to a business and how it can be obtained. The reality is that what many entrepreneurs think is sound logic can actually be detrimental and detrimental to their business.

Funding refers to the money needed to start and run a business. It is a financial investment in a product development, manufacturing, expansion, sales & marketing, office space and inventory company. It can come from a variety of sources and is used for a business from the idea stage to a fully operational and profitable entity.

How do I get business financing?

Misunderstandings about funding

Misunderstandings about funding

Top reasons for startup failures worldwide in 2021
Top reasons for startup failures worldwide in 2021

Depending on the existing network

While the existing network of friends and family and a few professional connections might be enough to raise the initial seed capital to start a business, it’s by no means enough once the business gets off the ground and begins to grow. Fundraising is a huge undertaking and an entrepreneur needs as many connections to investors as possible. Therefore, it is important to invest in networking to expand the connection pool.

Don’t invest in creating professional marketing materials

Investors receive thousands of unsolicited business plans asking for funding every year. A company looking to attract investors to a funding round must be able to effectively and concisely convey the value that sets the company apart through well thought-out marketing collateral. A company needs an attractive marketing campaign to attract good investors.

Underestimation of the funding schedule

The process of finding the right investors and going through the due diligence process can take up to a year or even longer. Therefore, an entrepreneur seeking financing must plan at least 12 months before the financing goals are achieved. This requires careful planning of business operations.

Exclusive focus on partnerships

The financing method may make it necessary to offer equity to investors. Young entrepreneurs mistakenly assume that this step is a takeover. That makes them defensive and offers investors only one asset partnership. This is a counter-intuitive move as it limits the number of investors who can receive funding.


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need for more data

The first thing to do with investors is to open a line of communication. Therefore, “when” becomes more important than “what” to say. It is advisable to get to the heart of the problem as soon as possible. If investors need to see more data, they will ask for it. It is primarily necessary to show them the product or service to be promoted.

Be in stealth mode

The fear that the idea could be stolen can prevent the company from presenting the invention at all. To capture investor interest, the product needs to be showcased to highlight the value proposition of investing in the company.

In due diligence with a venture capitalist

Fundraising is a numbers game and most companies fail due diligence processes and fail to raise funds. But that’s hardly a reason to stop or give up looking for investors. Indeed, this should lead to double funding efforts.

Exclusive focus on one category of investors

It is not advisable to be picky before having options. The entrepreneur must probe the market, understand all the ways of raising funds and cast a wide net to attract investors.

Not interested in speaking to associate level staff

Associate-level employees are essentially the gatekeepers of the industry. It is wise to understand that most executives act on the reports of associate-level employees. It is in the entrepreneur’s interest to maintain a good relationship and healthy communication with him as he could be the route for funding.

Problems around focus and organization

The fundraising process is overwhelming. Color-coded spreadsheets are not enough to organize and present all information. The company would be wise to invest a small sum in the right cloud infrastructure to fuel its campaign.


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Dependence on banks to avoid equity dilution

While it’s true that banks make great non-equity partners, they rarely take the risk of investing in a startup without collateral or personal guarantees. They have very strict agreements with a monthly payment guarantee.

Conclusion

Contrary to popular belief, financing the business is not a nerve-wracking experience. However, it requires the entrepreneur to thoroughly evaluate the different funding sources in order to make the right decision. After all, the company’s goal isn’t just fundraising. It’s about making the most of those funds to grow the business and make it profitable.

frequently asked Questions

What percentage of venture capital investments fail?

According to the National Venture Capital Association, an estimated 25-30% of venture capital investments fail.

What are the reasons for the failure of startups?

There are various reasons that lead to the failure of startups. Some prominent reasons are wrong partnerships, inability to raise funds at the right time, unprofitable marketing efforts, lack of research, etc.

What misunderstandings are there when it comes to financing?

Some of the basic misconceptions about fundraising are:

  • Depending on the existing network
  • Focus on one category of investors
  • Dependent on banks
  • Underestimation of the funding period
  • Be in stealth mode