First-time founders: Here’s why you’re not getting funded

As a first-time founder, you will quickly learn how hard it can be to raise capital or get in front of investors. Despite long hours of outreach and repeated attempts, you may have little or nothing to show for your efforts.

After years of teaching entrepreneurs how to pitch effectively, I’ve identified eight common mistakes that can destroy your credibility with prospective investors and lead to startup funding failures.

Fortunately, these mistakes are avoidable! Today, to help you put your best foot forward, I’m sharing some of the most common funding missteps.

1. You haven’t learned the funding courtship dance.

Would you walk up to a complete stranger and say, “Here’s everything you need to know about why I’m the perfect life partner. Will you marry me?” Of course not.

Yet, that’s the approach many new entrepreneurs take to get an investor’s attention. In other words, they overwhelm them with information right out of the gate.

To make the right first impression, begin your outreach by sending angel investors your elevator pitch (a very brief introduction). But hold off on sending your deck until they’ve expressed interest in knowing more.

In a future article, I’ll talk more about the different phases of courtship. For now, just remember to begin your outreach by sending your elevator pitch only.

2. You’re sending investors a sales deck instead of an investor deck.

Sadly, this is where many entrepreneurs sabotage their fundraising process. A sales deck, no matter how polished and professional, is designed to persuade the buyer of your product, service, or solution. That’s why sales decks emphasize benefits.

Investors, however, are not particularly interested in knowing every feature and benefit of your offering. Instead, they want to know how you’ve reduced their risk, and they want to feel confident in your ability to execute and provide them with a return on their investment.

At Pitch Genius, only 10% of the slides we create for investor decks focus on benefits. This amounts to one or two slides out of the approximately 23 in total you’ll need to create a full reading deck. In addition, persuading investors that you and your business are fundable requires a language all on its own!

To avoid one of the most common fundraising blunders and get investors to take notice, send them an investor deck that speaks their language, not a sales deck.

3. You haven’t provided investors with the right research.

Angel investors are eager to make a good return on their investment. They depend on the information you provide to gauge the validity of your market opportunity, and they’re also extremely busy.

If your research is weak, incomplete, or missing altogether, investors won’t take your opportunity seriously. Unless you give them hard data they can trust, they won’t take the time to fully research for themselves. Instead, they’ll dismiss your opportunity.

To build investor confidence, tell them the size of your addressable market —or the segment of the market you intend to serve—how much this segment spends or earns annually, and the rate at which the segment’s growing. Also, tell them what relevant trends and key drivers prove this to be a valid, growing market.

Of course, to build credibility, you’ll need suitable sources to back up your claims, so be sure to include them (which means nothing more than two years old and only citing trusted authorities).

4. You’re too quick to take investor advice.

Without a doubt, it’s an honor when angel investors or VCs take an interest in you. And, of course, you should listen to them when they attempt to steer you in the right direction.

However, it’s also important to remember that investors are not necessarily the best at advising entrepreneurs when it comes to their pitch. While it’s perfectly fine to change your deck to meet their needs, be cautious.

The right content for one investor might not be the right content for another. And, if you keep changing your pitch based on different investor perspectives, you’ll end up with an incoherent storyline with a “Frankenstein” deck.

5. You’re asking investors to sign a non-disclosure agreement (NDA).

For a serial entrepreneur, sure, the investor might very well agree to sign an NDA (maybe). But it’s highly unlikely that they’ll sign one for a first-time founder.

This is because investors receive multiple pitches every week (up to 15 or more if they have good deal flow), and many of the ideas they see are similar to yours.

If they signed an NDA and revealed something accidentally, they could get into legal trouble. So, to avoid potential problems, it’s easier to just pass on your opportunity.

Therefore, to increase your chances of being funded, avoid asking investors to sign an NDA up front.

6. You’re unprepared to answer the tough questions about your business model.

Investors are highly skilled at using questions to spot weaknesses in your business model—and many new entrepreneurs are unprepared to handle the pressure of this type of interrogation.

To prepare yourself and your team for the hot seat, be sure to critically analyze your business, know what makes your offering unique, be ready to justify your valuation, know how much it costs to acquire a new customer, know how you plan to grow, know your potential exit strategy, and so on.

The more prepared you are, the less pressure you’ll feel and the better you’ll perform when investors ask the tough questions.

7. You’re not targeting the right investors.

Many first-time finders take the spray and pray approach when it comes to fundraising (email addresses are easy to find, after all), hoping to get lucky. However, this wastes valuable time for both you and the investor.

Remember: Investors have interests, expertise in certain markets and not others, and typically a thesis document to guide you on what they’ll invest in. To optimize your investment outreach strategy, you’ll want to connect with backers whose specialties align with your own.

In addition, just because an angel investor, angel group, or VC funded a high-profile company, that doesn’t necessarily mean they’re the right investor for you.

Before you set your sights on a particular investor, do your homework. Also, see if you can talk to other people they’ve invested in. These conversations can lead to great insights into whether you are a good fit for a particular investor.

8. You haven’t prepared for negotiating terms. 

Even if your business plan is spot on, you present yourself as a fundable opportunity, and you receive an offer, things can go awry. For example, unless you’re prepared to negotiate effectively, you could end up in a bad deal. 

I see this happen all the time. That’s why, before entering into negotiations with investors, you’ll want to consult an experienced lawyer —one with solid industry experience who can help you understand what leverage you have and what terms should be included.

Some final thoughts 

The funding courtship dance is complex. But getting it right allows you to make a good impression, which can greatly increase your chances of raising capital.

Not only do you want to take the right steps to impress investors, but you also want to champion your own interests. This includes not being too quick to take investor advice, doing your homework to target the right investors, and consulting with a lawyer well before entering into negotiations.

If you’ve found this article helpful, please share it.

I’m including this teaser to encourage interest in coming back to you for more content. This would also be a good place to link to your second article about needing multiple pitch decks. In that article, which I’m currently writing, you talk about the different types of decks the entrepreneur needs and the order in which to use them.