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A startup’s success often hinges upon the founder’s ability to raise operating capital successfully. Before pitching Investors, it is helpful to be aware of some of the many myths associated with borrowing money. By avoiding some key pitfalls, you can optimize your chances of securing the capital that you need to launch your startup. Below are 20 myths and realities about raising money for a startup.
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Myth 1: You should reach out to as many people as possible to raise capital.
Reality: Raising too much capital can be counterproductive and can set the success bar too high Using a targeted approach is typically more productive than a casual, blanket approach to raising money. Utilize your industry contacts and local small business association and advisers to uncover potential sources of funding for your startup and proceed conservatively.
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Myth 2: Mends and family members make the best investors
Reality: Asking friends and family members to invest In your business has the potential to put a strain on your relationship, especially if your startup fails to thrive. Make sure that friends and family members fully understand the financial risks they are taking before accepting money from them
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Myth; You should only target potential investorsyou know and like.
Reality: Sometimes the best investors are people you have never met. They can offer an objective review of your startup and will typically give their input without worry that they may tarnish a friendship. Likewise, you should not avoid potential investors just because you do not like them, or because you do not have anything in common.
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Myth 4: You are obligated to take advice from your investors
Reality: While founders of most startups are usually not obligated to heed their investors’ advice, they may wish to consider it. Utterly shinning advice from experienced investors might not sit well with current and potential investors and could cause your capital well to run dry.
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Myth 5: Investors who have only invested in one or two startups are excellent choices.
Reality: Some of the most accomplished imm-torsare always on the lookout for new business ventures They have become proficient at sniffing out startups with potential and may Invest capital in hundreds of different startups
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Myth 6: You should only reach out to investors who have never failed.
Reality: Sometimes battle-tested investors are the best sources for capital. They have learned from past mistakes and can provide valuable Insight as you forge ahead on the path to successful entrepreneurship.
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Myth 7: An investors industry reputation is irrelevant as long as hejshe has money.
Reality: You should think twice before accepting capital from an investor who comes armed with cash and a terrible reputation. Remember that your Investors are often viewed as extensions of your startup, and you could ward off other investors and customers alike If one of your key Investors has a poor Industry reputation.
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Myth 8: You should provide as much detail as possible when pitching an investor.
Reality: A pitch that is too lengthy and detailed will put investors to sleep. Keep your pitch succinct and organized, and try to keep your presentation under 30 minutes Limit the inclusion of irrelevant information and keep your audience engaged by including graphics and financial projections.
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Myth 9: Social media should not be used to raise capital.
Reality: Social, professional networking sites can help you connect with Investors across the globe. In addition to LinkedIn, you can turn to sites such as Flax, Meetup, Startup Nation, and make investor connections some founders even help you meet potential Investors within your specific industry.
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Myth 10: You should avoid Investors who want to get involved in your business decisions.
Reality: Sometimes a new investor can turn into your best advisory and strongest advocate. That is especially the case with investors with a proven track record in your industry. Do not allow yourself to believe that you know everything there is to know about your product and your industry. There is always room to expand your knowledge, especially with the help of an experienced investor who is interested In helping you succeed.
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Myth 11: It is important to look for investors who are knowledgeable about your field.
Reality: Some of the best investors may lack direct experience within your field. However, they are experts at fostering successamong entrepreneurs who are smart, passionate, and motivated to execute Ideas.
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Myth: You need a lot of money to get started.
Reality: Sometimes you can get your business off the ground with a modest cash infusion from a few local contacts Once you have begun to generate revenue, you may find that you do not need as much money as you initially projected.
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Myth 13 People will not invest In your business if your startup has failed in the past.
Reality: Many investors are people who have launched startups of their own In the past. They have experienced both success and failure, and recognize that one failed business venture should not doom all future startup Ideas
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Myth 14: You should tryto raise capital as soon as you come up with a business idea.
Reality: While it may be tempting to begin asking for money as soon as you come up with a great idea, it is usually better to prepare a great pitch before you target potential investors. Take some time to conduct the proper research, put together a business plan, and develop a budget.
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Myth 15: Your company’s future earning potential is the key to wooing investors.
Reality: Many investors care more about your ctrrent earnings than about future earning potential. Be sure to reference any current earnings and patterns even if you are operating on a tiny scale
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Myth 16: Potential investors are more likely to Invest in a novel Idea.
Reality: Investors are not just In search of the next groundbreaking idea. Many Investors are more apt to invest In a startup launched by a hardworking, compassionate team of individuals who are committed to executing their vision.
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Myth 17: You won’t have to give up any equity in your business.
Reality: While there are always exceptions to this, most people who invest in startups will want to discuss equity. They may also expect to receive periodic progress reports and financial statements. You should be prepared to discuss these variables when you pitch your idea.
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Myth 18: It is easier to raise more capital once you have a prominent investor.
Reality: Sometimes investors will assume that you already have all of the capital and guidance that you need if a prominent Individual has invested in your business. Do not let off the gas just because a “major player” has invested In your startup.
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Myth 19: if you are unable to raise capital, then your idea must be a failure.
Reality: Just because you are unable to raise money does not mean that your idea Is a failure. Some people have seat Ideas but are terrible at pitching investors. Before you throw in the towel, review your pitch with a trusted advisory to see how you might be able to Improve your approach and increase your chances of raising capital.
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Myth 20: Once you have raised the capital you need, your worries are over.
Reality: While raising capital calls for a celebration, this is merely your first step on your journey to success. The success of your startup hinges upon your continued perseverance and dedication to achieving the goals you have set.
Knowing the myths and realities of raising capital for a startup can bolster your odds of success as you make your pitch to potential investors. By Increasing your awareness of the 20 myths above, you can enhance your chances of raising capital for your startup.
Thanks for reading!