Learn how investors think and what factors they keep in mind when making decisions. As a bonus, we start off with two common misconceptions start-ups often have about fundraising.
Common Misconceptions About Fundraising
A commonly held misconception about fundraising is that you must know an investor before you can approach for funding.
Of course, it’s best to have some validation before approaching those outside of your core. But it is plausible, normal even, to strike a conversation with an investor you don’t have a connection with yet. With this said, it is easiest to start with your current network and work out from there.
You should identify the right type of investor for your deal based on risk and return. As a rule of thumb, angels and family offices want three to five times their investment, and venture capitalists want ten times their investment. Family offices are usually more patient when waiting for their return.
After choosing the right type of investor for your raise, you can then find those investors and initiate a conversation. Later, follow up and build a relationship.
Another misconception is that once an investor has said “yes”, it’s a ‘done deal.’ In most cases, this is not so.
The “yes” marks the start of the diligence phase, which in most cases lasts 4 to 8 weeks.