Fundraising is not easy. In fact, it can be incredibly difficult, and it is often a major deterrent that prevents many startups from getting the ball rolling. However, a lot of that hesitation is due to people’s tendency to buy into the myths surrounding investing and investors. Here are some of those top myths debunked:
Myth 1: Biggers is Always Better
Reality: There is no doubt that having a big name financially backing your company has its benefits. However, there are also advantages to establishing relationships with smaller firms and individual investors. For example, if your company is one of many in which a big firm has invested, you may not get the attention you need or desire. In many cases, investors with smaller portfolios have more time and inclination to pay attention to each of its investments. Instead of worrying about the name behind the money, it makes more sense to focus on the actual value that will be provided.
Myth 2: Most Investors are Leery of Startups
Reality: Some potential startup leaders throw in the towel before they even enter the ring because they have been convinced that they will never get the funding they need. Sure, there are investors who are hesitant to plunk down a bunch of cash for a fledgling startup. But, with hard work, discipline, and a pragmatic approach to building the business, there is no reason savvy leaders can’t find the right investor willing to back them.
Myth 3: Only VCs Will Fund a Startup
Reality: This is an extension of the previous misconception because countless folks are convinced that, in addition to there being limited funding options, it is only the venture capitalists who will take on a “risky” investment like a startup. This is simply not true and a quick Google search of the investors backing some of the bigger name startups will prove it. There are plenty of hedge funds, private equity firms, investment banks, and other sorts of financial institutions that also dabble in startup funding.
Myth 4: Past Performance is the Best Indication of Future Returns
Reality: One of the first things startups seeking funding want to know is how well a potential investor's portfolio has done. You may be trying to suss out whether the particular firm has a keen eye for picking winners, as well as its commitment to helping its investments succeed. Although performance can certainly provide a trove of information, it really isn’t a significant determinant in your success. After all, the economy changes, markets shift, and sometimes mere luck may be a factor.
Myth 5: Money is Money
Reality: It sounds crazy to turn down any money that is offered, but in some cases, it may be the best decision. Startups cannot view all money equally, as the people behind the dollars are of tremendous importance. It is imperative to have an investor that “gets you,” and there must be some level of congruence regarding strategy and decision making or else the relationship is doomed.
Myth 6: Inside Connections are a Must
Reality: Obviously, it is incredibly helpful if your best friend’s mom is the head of a venture capital firm. Social and professional networks undoubtedly play an enormous role in the business community. Nonetheless, anyone lacking such inside connections should not despair. There are plenty of partnerships that sprout up simply because of a close relationship between two of the leaders that end up failing miserably. There is a reason that people often caution against working with family or close friends. If your business is solid, your intentions are clear, and you make the effort, the money will come.
Myth 7: Too Much Competition is a Barrier
Reality: Competition should not be viewed as a barrier, but as a motivating factor. If your company is seeking to provide a service that is similar to an existing business, then make your version better so that investors want to bet on you instead. We often compete with others to attain things (a spot on the team, a seat in a college program, jobs, etc.), which can and should push us to be better, and competing for dollars should not be seen any differently.
Myth 8: Beggars Cannot be Choosers
Reality: Startup leaders sometimes get desperate and often end up reshaping their businesses to entice prospective investors. If the initial business has to morph into something that is virtually unrecognizable for the sake of financing, then perhaps it wasn’t meant to be. Compromise will be unavoidable along the way, but a complete rehaul shouldn’t be necessary. The most successful startups have a clear vision from the beginning and manage to navigate obstacles along the way without having to veer too far astray.