Ken N. Founder & CEO of AsiaTokenFund Group whose focus is on Web3 Startup, incubator & accelerator ecosystem.
Securing venture capital (VC) funding is a crucial milestone for startups looking to fuel their growth and bring their innovative ideas to fruition. However, the road to securing funding can be filled with pitfalls.
I have spent many years in the start-up space: Launching multiple startups, working for VCs, acting as an incubator or investor and even assisting in fundraising. I’ve seen how many startups make similar mistakes when seeking funding, which can lead to missed opportunities and potential setbacks.
In fact, mostly working in the Web3 space, I have observed around 20 common mistakes that startup founders make when looking for funding. In this article, I will write about six of them and reveal more in subsequent articles.
So here are six mistakes I see startups make when asking for VC funding.
1. Lack Of Research And Preparation
One of the biggest mistakes startups make is approaching VCs without thorough research and preparation. It is essential to understand the VC firm’s investment thesis, portfolio companies and preferred industry sectors. By conducting in-depth research, startups can tailor their pitch to align with the VC’s interests, increasing their chances of success.
Be aware that VCs and investors are very busy people and receive a lot of pitches weekly, if not daily. Not knowing who they are and requesting a meeting, and presenting something that does not align with their business will just upset them and make them feel like you are wasting their time.
2. Overlooking The Team
VCs invest in people as much as they invest in ideas. Startups often make the mistake of downplaying the significance of their team when pitching for funding. Make sure to highlight your team’s expertise, track record and ability to execute the business plan. Show that you have a strong, cohesive team capable of driving the startup’s growth. This will also relate to a later point about personal branding. When it comes to giving you money, knowing who the people that will be spending the investors’ money is important.
3. Lack Of Clarity In The Business Model
It is important for your startup to be able to clearly articulate your business model to potential investors. Many make the mistake of assuming that VCs will understand the intricacies of an industry or product. Try to avoid using jargon and focus on explaining how your business generates revenue, who your target customers are and how you plan to scale the operation.
The most important aspect of your business model is knowing how you will gain customers or users. Avoid just saying, “We will get millions of users,” without knowing how. Also, avoid simply saying that “users will love our product so much that everyone wants to use it” because, in reality, if you haven’t surveyed people and asked about their opinion on your product, you probably won’t know if users will love it.
4. Unrealistic Valuation Expectations
Valuation is a critical factor in VC funding negotiations. Startups often set unrealistic valuation expectations, which can turn off potential investors. It is crucial to conduct a thorough valuation analysis, taking into account market trends, comparable company valuations and revenue projections.
Be open to negotiation and demonstrate a realistic understanding of your startup’s worth. Especially when it comes to Web3 startups that are fundraising through token investment, understanding realistic tokenomics is crucial. It can be a pain to be presented with unrealistic and poorly planned tokenomics.
5. Lack Of Traction Or Proof Of Concept
VCs typically look for startups with traction or a proven concept. Many startups make the mistake of approaching VCs too early without a solid customer base, validated product-market fit or even a minimum viable product (MVP).
I have seen too many startups only present a whitepaper or pitch deck and expect VCs to invest millions. It brings me back to my earlier point that VCs receive tons of pitch decks, with many of them feeling similar and without traction. Even if you don’t have an MVP, building a community and branding first can be as equally important. So, if you can’t show an MVP, at least show the VCs that you already have many eager fans on the waitlist.
6. Ineffective Pitch Deck
A pitch deck is a vital tool for startups seeking VC funding. However, many startups create an ineffective pitch deck that fails to capture the attention of investors. My recommendations are to avoid overcrowding slides with too much information, use compelling visuals and keep the presentation concise and focused.
A well-designed pitch deck should tell a compelling story and showcase the startup’s unique value proposition. What I personally can’t stand is startups using the most basic PowerPoint. This can make the pitch deck look scammy. But that is not the main point of frustration—to me, this shows that the founder didn’t make the effort to make their company’s story look attractive. Not having a designer is no excuse; there are many fool-proof platforms such as Canva that can build very attractive pitch decks.
Securing VC funding is a challenging but rewarding journey for startups. By avoiding the common mistakes outlined above, I believe your startup can significantly improve its chances of securing the funding needed to thrive.
Remember to present a clear business model, address risks and create an effective pitch deck that tells a compelling story. By learning from these mistakes and adapting your approach, you can increase your odds of successfully securing VC funding while reducing the frustrations of investors having to go through these common pitfalls again.
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