Things Not To Do While Raising Funds

India is the fastest growing and 3rd largest start-up ecosystem globally - according to NASSCOM. It means a new start-up is blooming every other day. The total number of start-up deals in India and the average deal size have shown a notable increase in the January-March period of 2016, compared with the preceding quarter, backed by an improvement in fresh funding, according to a report by research firm, Tracxn. This shows investors are still bullish and India can easily be called a realm of opportunities.

Starting a business and raising funds is not a five-finger exercise. It takes a lot of testing and validation of the product and selecting the right team to begin with to strategically plan, expand and grow. Fundraising is often integral to accelerating growth, but in order to ensure you successfully close a round, aviod the below pitfalls:

Raising seed capital without thorough analysis

Although raising seed capital is important but you can never be unmindful of your approach. Timing is crucial here. Pitch to investors/ venture capitalists only after having a thorough understanding of your business plan. Validate your product and know the target audience before making the first move.

Avoid negative publicity

PR activities are carried to draw publicity. An organisation should always try to draw positive publicity. One should not get involved in unethical practices as such practices reduce the credibility of the company and welcome negative publicity. For example, the whole Housing.com incidence attracted negative publicity. Applying the right set of strategies ensures the brand doesn’t accrue any negative publicity. Negative PR can lead to uncertainty in an investor’s mind regarding your conduct and adversely impact the possibility of a fundraise. Also, handling customer complaints and queries effectively tones down the chances of negative feedback especially on social platforms.

Prevent too many changes in top management (Core Team)

Doing frequent changes in the core management team questions the authority and integrity of the brand. A core team drives the performance of the company and ensures the stability of its functioning. It also creates an iron-strong rapport among the team members. While you are fundraising, changes in the top management can be detrimental to closing a round. Investors invest in a team and not in single individuals.

Frequent shifts/changes in the business plan

Strategic planning is as important for a brand as its business operations. Changes in the business plan every now and then can have negative impacts internally as well as externally. With the frequent rounds of changes, employees may start to feel directionless.

Externally, it doesn’t reflect a positive image to the investors. They might start to question the efficiency of the business founders and lose confidence in the investment plan.

Inadequate disclosure of information to the VCs

When you start the fundraising process, make sure you share the right amount of information. It will immediately tick off the investor, if you are overly guarded about the information. Also, there should not be over-sharing because the information tends to leak from one to the other when you are pitching your ideas to different investors. Once you start getting progressive results in fund raising meetings, you can set the bar high and share all due diligence information.

Although fund-raising can be a tricky affair in some cases but it is not as difficult as it may seem. At the end of the day, money is always available to sound businesses that have good fundamentals, traction to prove this and a strong leadership team at the helm.

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