On the surface, any form of startup funding seems right, but this is not always the case. Just like any other process, one wrong move when funding a startup can be costly to a business. Without understanding the unique approach that every source of startup funding should be accorded, many entrepreneurs end up struggling.
Funding missteps such as underfunding or overspending are some of the startup funding mistakes that are common. This article looks at some of the most common mistakes that entrepreneurs should look out for when funding their startup businesses.
Overlooking Other Startup Funding Options
When venturing into entrepreneurship, many startup founders find themselves obsessed with raising big capital. The internet, which is rife with a million ways to attract big investors to budding businesses, comes to their rescue with its plethora of options.
Almost every start founder focuses on angel investors, business incubators and hefty bank loans to raise capital. They fail to fully expound on all their options and in the process, overlook cheaper start funding options. Instead of running to the bank, first, explore options nearest to you such as loans from services such as PayPal.
Such business loans can provide venture capital at cost-effective interest rates, in addition to protecting your credit details from credit bureaus.
Selling Their Products To The Wrong Investors
If you are launching a startup for the first time, there’s a high chance that you are desperate for funding. We can’t discount the fact that sometimes such feelings are unavoidable. What you should note, however, is that desperation may make you sell your explosive product to the wrong people.
Before approaching any potential investor, first, conduct in-depth research on whether they have funded startups similar to yours before. If you are launching a tech-startup for example, seek startup funding from tech-oriented investors, This increases your chances of receiving their funding, in addition to offering other services such as business mentorship.
Seeking startup funding from an investor without understanding their criteria for making choices will only have your business spirit broken from constant rejections.
Miscalculating Startup Funding
Which is the best way of calculating your startup funding? Another mistake that is common among startup entrepreneurs is overfunding and underfunding their startups. Entrepreneurs who can draw a line between ‘too little’ and ‘too much’ often succeed in their financing endeavors. For the others, their miscalculations only pave way for more detrimental consequences.
I know overfunding sounds more of a blessing, but in the real sense, overfunded startups end up making misled business choices. When you are overfunded, you will most likely overspend on irrelevant ventures. If anything, ask for as little as possible.
Aim for startup funding that can cover costs during your business’ difficult phases, because too little will also hinder your business operations. The most accurate way of calculating your startup costs is by adding your starting assets and your starting expenses.
Don’t Give Away Too Much
Regardless of how much venture capital your startup company requires, overcrowding your table with investors is one mistake you should never make. In as much as you want to invite other people on board, make sure you still have the biggest stakes in the company. If you are going to allow shareholders to own more than 20% of your company, make sure their contribution is pivotal to the long-term existence of the company.
If you can raise startup funding through other ways that don’t dilute equity, it is wise that you do so. Most startup founders get blinded by the need for capital and end up incurring high costs over the long haul.
Ignoring Professional Advice
Entrepreneurs enter the business scene with infinite confidence in what they are capable of. For others, they sideline financial and legal professionals in order to cut down extra costs. In the long run, such choices cost their startups and they end up running back to these professionals.
Before you make any rash decision when funding your startup, seek the services of a financial advisor. These professionals are well versed in areas you may be oblivious to such as legal requirements and diversified funding options. Accountants will also help you evaluate your business with more precision. Hence, eliminating any loopholes for over and undervaluation.
With professional navigational advice, you will be able to evaluate and understand your business’ requirements better. Seek the services of an attorney to affirm that the foundation of your business is solid.
Startup funding can be a demanding phase of starting a business, and many entrepreneurs make many mistakes. If you are thinking of taking the entrepreneurial path, you can learn from some of the mistakes above in order to make your funding path more clear.