Startups and venture capital are frequently mentioned together. Obviously, venture capitalists have played a huge role in funding countless successful startups, but there are plenty of successful startups that have made strides without an investment from venture capitalists. Here are six common misconceptions about raising venture capital:
Misconception 1: It is an Essential Step
There is a common belief that venture capital funding is the only way for startups to receive funding and eventually become successful. However, there are plenty of startups that bootstrap their businesses that attain great success. Bootstrapping gives startups flexibility because there usually aren’t any conditions attached to the use of funds. And, it may cause startups to work within a tighter budget, forcing them to allocate resources wisely and really focus on efficiency. Sure, it may be helpful to have a check and support from a VC firm, but it is not an essential step for all startups to succeed.
Misconception 2: It Must be Done ASAP
Clearly, raising venture capital is not an absolute necessity. However, if your company knows for sure that it needs those funds, it may be tempting to jump right in as soon as possible. This is usually because of the misconception that raising venture capital should be done as early as possible to help with growth. But, startups should not begin any fundraising until they have a cohesive leadership team, solid business plan, realistic budget, and sound financial projections, along with other evidence that the business is healthy for launch.
Misconception 3: It is the Size of the Check that Matters Most
This is a huge misconception. So many startup founders are fixated on raising a certain amount of money that they forget to look at who is furnishing those funds and what the VC writing the check will actually do for the business. Raising venture capital needs to be about more than just depositing money into the company bank account. VCs should be bringing something else to the table that will nurture the business, such as outside business connections or internal management consultants. Even though raising venture capital isn’t essential, if your company does go that route, it is important to get the right things out of the relationship.
Misconception 4: Inundating Inboxes Will Get a Hit
If you know for sure that you want to raise venture capital and your company is really ready for the process, it is key to have a methodical fundraising approach. Far too many startups fail at fundraising because of the erroneous notion that they should just inundate the inboxes of leaders at VC firms. It is okay to have some kind of email campaign and to make cold calls, but there needs to be a proper fundraising plan in place before getting started. This means researching VCs by analyzing their background, expertise, and portfolio, putting together pitch materials, and then making the right connections.
Related Article: 9 Lessons Learned While Raising Venture Capital
Misconception 5: Perfecting the Product is More Important than Perfecting the Pitch
Startup founders are usually incredibly excited about their venture, at least hopefully they are. Some of the most successful startups thrive because of the founding team’s passion for the business. For the most part, this is a fantastic thing. The only problem with this is when the team is so enamored with perfecting their product or service that they have trouble focusing on other details, both large and small. Although it is important to wow prospective investors with the details of the business itself, the manner in which this is conveyed is just as important. The most amazing product in the world probably won’t come across as very awesome if it is explained in an awkwardly delivered or disorganized pitch presentation. Thus, both the product and the pitch must be crafted to perfection.
Misconception 6: Never Bring up the Competition
In a pitch to VCs, it is normal and encouraged to tout about the uniqueness of your venture. Chances are your startup was founded on the belief that it could deliver something completely new or drastically improve upon something already in existence. However, startups often shy away from discussing their competition when seeking funds from VCs. There is this unfortunate misconception that this somehow undercuts a startup’s singularity, and the leadership team wants to emphasize that it is different and thus worth funding. But, startups can and should use comparisons to their competition to their advantage. For one thing, it is important to demonstrate that you understand the relevant market and the competitive landscape. And, these points can be used to highlight your company’s creative spin and inherent value.