How to raise first investments in a right way
The majority of founders thinks about investments almost from day one. Tens of thousands of founders send hundreds of thousands of e-mails to investors every day, hold several meetings a day, sometimes losing focus from their business itself. There is no ideal algorithm for raising investments in a startup, however, there are some rules better not to break.
Don’t take money if you don’t know for what
One of the most common mistakes young entrepreneurs make is raising investments when they don’t really need them. Money is just a catalyst for all the good and bad in the company. Even if you manage to raise a round, with incorrect hypotheses you’ll only scale mistakes. Besides, any investment round is a compromise. The entrepreneur agrees to become less independent for the opportunity to use these money. Therefore, think twice before taking them — do you really need money right now?
Don’t take easy money
Investors who jump into a deal too easily and agree to invest in a project without even understanding the basic hypotheses for explosive growth or, even worse, the basics of venture business, as a rule, get disillusioned and become a serious burden soon. So you will have to spend a lot time and cognitive energy on it.
Be careful when taking money from family and friends
3F (friends, family and fools) can be an excellent initial test of your project’s attractiveness to investors. If you cannot convince even family members and friends — the people who believe in you the most — to invest then you’ll definitely fail to interest professional investors. But even if you managed to get 3F interested, make sure that your closest ones understand the risks they are taking — otherwise, in case of failure (and, let me remind you, the probability of it is about 90%), you’ll lose not only your project, but also relationships.
Don’t treat investors like piggy banks
Venture investors have been around the startup market for a long time. This means that, in addition to money, they at least have some connections, and at best, relevant experience. When they invest in your project, their interest in its success increases accordingly, and there’s no sense in limiting the benefits you can gain.
But think with your head
As Vinod Khosla said, up to 90% of investors’ advice not only do not help projects, but significantly harm them. Inexperienced founders listen to their investors without taking into consideration that there’s no common way to success, and all the success stories are unique. This practice of shifting responsibility onto the shoulders of investors and mentors is very toxic and in 100% of cases will lead to failure. Remember — this project is yours, analyzing all the information is critical, but it is even more important to filter it and make decisions on your own.
Collect alternative opinions, but think with your own head and make independent decisions. Peace!
You can also read my previous articles:
- How much should early-stage startup founders pay themselves
- We became a Mobile App of the Year on Product Hunt — so what?
- How we raised $180 thousand in a few weeks with no product
- Why every founder should write
- Venture investors and absent-mindedness
- Educational technology (EdTech) is the major trend of the decade
- Do you really need VC?