Apr 30,2019 | 10 min read

Common Rookie Mistakes Startups Make When Raising Capital by Advocate Khyati Dhuparr

Author -  Advocate Khyati Dhuparr and Associate Runa Jasia

"A startup or start up is a company initiated by individual founders or entrepreneurs to search for a repeatable and scalable business model."

Fundraising is a process of gathering contributions voluntarily, of money or other resources, by requesting donations from individuals, businesses, charitable foundations, or governmental agencies (see also crowd-funding). Though typically fundraising refers to efforts to collect gather money for organizations of non-profit nature, it is sometimes used to refer to the solicitation and identification of investors or other sources of capital for for-profit enterprises.

Every startup owner wants to raise funds for their company. But due to focusing too much in the part of raising capitals they often make big rookie mistakes which can lead to disastrous events of the company as well as for the business owner. List of some mistakes that a startup company does while raising their capital are:

  • Wrong way of pitching

A person who has never pitched in their whole life, who has every required skilled except the communication and speaking skills, one day suddenly needs to pitch for their startup. How awful and hard that situation could be for that person. So, because of their nervousness they lost the focus and are not able to explain their idea in front of the audience or the investors. Maybe their idea is really unique and great but because of not able to speak up all things are gone in vain. On the other side, people tend to make their pitching far more complicated in order to impress the investor or the audience. They think showing their idea as complicated and complex will help them in attracting people. But they are wrong; it is not the case every time. People are always looking for a simple and unique idea. 

  • Choosing the wrong investors

What if the business owner selects an investor who is fake or deceptive? Their whole business can go in the wrong hands of an individual in such cases. The owner must be very careful while selecting the investors. They need to research about the investor they are dealing with. Before making any contract or agreement with the investors, one must check the whole background of the investors. It will help them in knowing if the investor is fake or genuine. It will also aid in knowing that the investor will be able to provide them the funds or not.

  • Do not hurry

Many startup owners are in a hurry to grow and expand their business. The truth is that it takes years to raise the funds and the capital. It does not happen in one single night. There are so many startups around the world. A business owner needs to find some uniqueness in their startup and needs to show the world. There may be some factors that makes them different from all the other startups. It is a slow process and needs a lot of patient as well. It is not easy as it seems. The startup owners need to attend lots of battles and learn how the winners make it to the end. Even facing many rejections, one has to keep the hope alive of the team also.

  • Not understanding the current market scenario

Many times it could happen that startup owners are not able to understand the current market situation. That can be responsible for having different mind sets of an investor and of the owner. There are many factors which are responsible for the capitals. It's not only about having a great idea; there are a few other factors that affect the investment:

  • Geographical area in which the startup is located
  • Type of city (big, small, medium or developing)
  • Cultural and moral values
  • Demand of the product in that area
  • Size of the company
  • Number of employees required
  • Future scope of benefits and returns, etc.
  • So there are many factors which affect the amount of investment as well as the type of investor. 
  • It's important to ready what is the current situation in the market, what is in trend and what a consumer truly wants. 
  • Wrong Network

Business owners who do not have right connections in order to expand their funds are not going anywhere. It is very important to know the right people who can be easily convinced from the idea of the Startup. The business owners needs to look for the right investor and right people who can help them in raising funds.

  • Asking for more or less

Demanding a lot from the investors may not be a very good idea for the sake of any startup company. Though everyone wants a nice upfront value for their company but it does not mean that they will ask for more than they should. Also the founder must also not degrade their value in order to get an investor for their company.

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Khyati Dhuparr

A foreign-educated Indian lawyer skilled in utilizing strong legal knowledge focusing on Indian and International Comparative Competition/ Antitrust Laws , M&As and Corporate Laws including special focus on Start-ups. Highly motivated and results driven with a proven successful track record of running a legal practice in a boutique law firm in India.