Common early-stage fundraising mistakes — and how to avoid them

Written By

Sophia Lee

Graphic illustration of coins in a stack with arrow going downward | Common early-stage fundraising mistakes | Mercury
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Venture capitalists receive hundreds of emails and see dozens of pitches every day. This begs the question: as a founder, how do you stand out in an investor’s busy inbox enough to secure a meeting?

Many founders respond by trying unorthodox methods, from attention-grabbing subject lines to elaborate decks. But what we’ve learned in conversations with investors is that it’s not the non-conventional tactics that get the ‘yeses’ — it’s often as simple as avoiding the most common mistakes that 95% of other founders make.

This is especially true for first-time founders who are raising their pre-seed or seed round and don’t yet have the experience to sidestep common blunders.

To get the most reliable insights, we went straight to the source. We spoke with investor Meka Asonye, partner at First Round Capital, and Emily Kramer, co-founder and partner at MKT1 Capital, to understand the most common pitfalls early-stage founders stumble into when fundraising — and how to avoid them.

Here are the most common early-stage fundraising mistakes they shared:

Asking for an unrealistic amount

Understanding how much to ask for during a fundraise is an art and a science. Unfortunately, this is where Meka sees many founders stumble. The most harmful mistake, he says, is asking for an amount that's significantly higher than what's appropriate for your business stage. “If you ask for too much, investors are going to dismiss you before even meeting you.”

However, asking for too little is a red flag to investors as well. “Investors are going to be hesitant because they know it’s not enough money to de-risk any part of the business — which means the round will basically be a bridge to nowhere,” Meka says.

To avoid making this mistake, here’s what Meka recommends:

  • Identify what your business needs. “You need to understand where your business is at and what it needs. Are you looking for a friends and family round, a pre-seed round, or a seed round?” Meka also says it’s important to be self-aware of how attractive your business will be to investors. If you’re a well-known second-time founder who IPO’d with your last company, for instance, you can likely ask for a bit more funding. But if this is your first time raising in a competitive industry, it’s better to stick to what’s in the ballpark range.
  • Calculate what you need to get to the next milestone. You can determine the amount to ask for by roughly calculating how much you need to get to the next fundraising milestone. “The goal should be to raise an amount of money that allows you to de-risk the business in a way that allows for more capital in the future,” Meka explains. For most SaaS companies, this milestone can be delivering a strong MVP, setting up a few design partners, or generating consistent revenue.
  • Benchmarks. Finally, Meka recommends researching benchmarks to gauge whether the amount you’re asking for is aligned with what other founders are raising in the current market. A quick Google search will surface tons of public data for founders to use as baseline numbers. Carta, for instance, regularly publishes private market reports that provide a snapshot of the state of venture capital in a given quarter.

Targeting the wrong investors

Meka points out another mistake: failing to take a strategic approach to investor outreach. “I think a lot of founders believe the goal of early fundraising is to have as many Zoom or IRL conversations as possible.”

The problem with this, he says, is that it often leads to founders throwing spaghetti at a wall to see what sticks. Instead, Meka encourages founders to consider what they need and develop a target investor list.

Emily agrees with this advice. “Founders should make a list of their must-haves for their round to understand what’s important to them.” She offers a few questions for self-reflection:

  • What are the things I care about most in this round?
  • Given this, does it make sense for me to go after VC firms? Or does it make more sense for this to be an angel round?
  • If I am going to go with a VC firm, should I be talking to a generalist firm? Or a more specialized firm?
  • What are the traits that are most important to me in a lead investor? Is it someone who really understands the industry my business is operating in? Or is it the investor with the best reputation?

Use your responses as a way to filter the investors you reach out to. Not only will this save you time, but it’ll also increase your chances of success. “The smartest founders can quickly qualify whether or not an investor is a good fit,” Meka says.

Stretching out the process for too long

Another mistake Emily sees is founders prolonging the fundraising process. “Founders will sometimes spend months trying to raise because they’re fixated on reaching their initial target. So maybe they raised $1 million, but they wanted to raise $3 million, and now they’re six months into the process.”

The problem with such a drawn-out process, she says, is that it eats into time that could be spent building — and burns through the money you currently have. Also, without some level of urgency, it’ll be difficult to get investors to commit to your round.

That’s why Emily recommends timeboxing the fundraising process. She says it can help to think of it in distinct phases:

  • Testing the waters. This should be a period of two to four weeks where you’re going out and having non-committal conversations. Talk to founders and investors you have a relationship with to understand what the market looks like and whether it’s a good time to fundraise. Run your idea by people and get feedback. Use this time to collect as much information as possible before
  • Finding a lead investor. After testing the waters, Emily encourages founders to focus on bringing in a lead. “I think one mistake founders make is not focusing on how they can get a lead investor first.” This phase, of course, will vary widely in terms of how long it takes. So consider setting a loose goal of a few weeks, but be flexible as needed.
  • Filling out the round. Once you have a lead investor, filling out the rest of the round with smaller funds and angels should come more easily. However, Emily says founders should be prepared to be flexible if things don’t move as quickly as planned. “At some point, if your circumstances allow you to, you may need to adjust the size and terms of your raise.”

A word of caution: while some urgency is good, don’t use that as a forcing function to get investors to commit — especially if the urgency isn’t real. Emily says she’s had people exaggerate, or even lie, about how close they were to wrapping up their round. These founders, she says, always end up losing investors as a result.

“VCs talk to each other. We're constantly discussing deals at events, over Slack, via text. So if you've told one investor that your round is closing on Friday, but you tell someone else that your timeline is flexible, they’re going to put the pieces together,” Emily says.

Failing to tell a compelling story

According to Meka, he often walks into a meeting and hears the exact same story he’s heard in hundreds of other pitches. “Oftentimes, founders aren’t great storytellers, but they have no idea because nobody has told them.”

To solicit this type of feedback, here’s what Meka recommends: “Figure out what materials you want to share with investors, then send those to five to ten people who are experts in your field and another five to ten who are not. Then triangulate the feedback that you get.” This, he says, will help you hone in on a sharp, engaging brand narrative.

Meka also shares the key points that every single pitch deck should cover:

  • Problem: What are you solving?
  • Solution: How are you solving this problem?
  • Unique insight: How is your solution different from what’s already out there?
  • Why: Why are you passionate about solving this problem?
  • Vision: What is your ultimate vision for this company?
  • Go-to-market: How do you plan to market, sell, and distribute your product/service?

Team: Who is on your team, and why is your team uniquely qualified to solve this problem?

Not preparing the ‘out loud’ story

Every investor will tell you that one of their biggest pet peeves is when a founder comes into a pitch meeting and reads the deck. Not only is it a waste of everyone’s time, but it also doesn’t accomplish the goal of the meeting. “Don’t sit there and go through the deck, ever. The best way to figure out if it’s a good fit on both sides is to have a conversation,” Emily says.

To create a more open, two-way dialogue, Emily recommends that founders prepare what she calls their ‘out loud story.’ “This should complement your official deck but encourage more of a casual conversation about your journey as a founder and your company.”

To clarify: it’s OK to refer to the deck or run through any slides that the investors want a deeper dive on. But don’t over-rely on your presentation or read straight through it.

Every founder’s pitch and fundraising strategy will ultimately be a little bit different, but the lesson here is that you don’t need fancy, unorthodox tactics to get an investor’s attention. By applying these simple but critical best practices, you’ll increase your chances of having a smoother fundraise and securing the investments you need to take your business to the next level.

Written by

Sophia Lee

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