Red Flags to Avoid When Fundraising
What are the some of the biggest red flags that scare away potential investors? Avoid these 5 major fundraising don’ts to position your company for growth and success going forward.
There are a number of major red flags I see that often scare away potential investors. By being aware of and avoiding 5 major fundraising don’ts below, you’ll be better positioned for successful fundraise and growth of your company going forward.
5 Major Red Flags to Avoid When Fundraising for Your Start up
Paying off debt
When you’re ready to seek outside capital from investors, you should have figured out the business model and be able to clearly articulate how you’ll use the investment to supercharge your company’s growth. In other words, the capital should ideally not be used for paying off the debt. While you may have incurred the debt to get the business where it is today, most of the investors wants to know their capital being used to invest in the growth of business to increase its future value.
Enlisting banker to conduct the raise
At the earliest stage of a company, angel investors rarely see banker involved in raising capital on behalf of the start-up. In fact, many angel groups strictly prohibits the involvement of banker in there deals. Because the amount of the raise usually relatively small in the beginning, investors don’t want some of proceeds going to an intermediary when it could all go towards the company’s growth.
Paying for legal issue
If you or your company are a target current or past litigation, this can be a point of contention for investors. Again investor wants to know that any capital they invest in the company is growing the growth of the business, no towards costly legal bills.
Excessively high salary
Investors do not like it when you propose to pay yourself an excessively high salary. The amount may vary by role and location, but in the earlist stage, I often see fellow investors raising eyebrows when they see an individual salary of over $100,000 per year.
When I hear too many buzzwords for unnecessary technology from an entrepreneur, I become cautions, especially because may come across as inauthentic if it’s not natural to you. Most investors I know don’t have “ninja” on their short list of “most-haves” in an entrepreneur
So take heed, and good luck with your fund-raise.