By Maximilian Klietmann, VP of Marketing, LSN
In almost every case, the scientist-entrepreneurs approaching LSN are falling victim to one or more fallacies that are propagated through the industry. LSN is in a dialogue with over 5,000 investors around the world, and the reality is that what many entrepreneurs believe to be sound business logic could be dooming their companies. This article compiles the top 10 fundraising misconceptions so that you can avoid these pitfalls.
1. Your existing network is enough. This belief is especially common among first-time fundraisers. They believe that the relationships they have are more than enough to get them funded in short order. However, after a few months, the enormity of the fundraising task becomes clear; it’s a numbers game and you will need a lot of investor candidates to call upon. A great article that dives deeper into this subject can be found here: https://blog.lifesciencenation.com/2014/01/23/a-word-on-when-to-go-outbound/
2. Professional marketing collateral doesn’t matter. Often, scientist-entrepreneurs believe that the “science sells itself” and professional marketing materials are not necessary to raise the money they need. Nothing could be further from the truth. Investors receive thousands of unsolicited business plans in a year, and if you haven’t thought about how to set your company apart and effectively communicate the value succinctly, you’ve already failed in your outreach.
3. Fundraising won’t take long. Many entrepreneurs naively assume that they can raise the capital they need in a few months. However, the reality is that finding the right investors and going through the due diligence process can take up to (and often more than) a year. From the outset, expect a minimum of 9 to 12 months (if you’re lucky) to raise the capital you need.
4. Focusing exclusively on partnering. Fear of dilution, loss of control, and other factors can make entrepreneurs afraid of equity investors. This leads to an exclusive focus on asset partnering that drastically reduces the odds of moving the company forward. You need a global target list of all potential sources of capital. Only once you’ve cast a broad net and you’re in dialogue with several parties, do you have the luxury of being picky.
5. More data is needed before speaking to investors. This may seem counterintuitive, but you need to speak with investors as soon as you can. If they want to see more data, they will let you know, but at least the line of communication has been established. Otherwise you are squandering valuable time and preventing your own progress.
6. “We’re in stealth mode.” This is even worse! Ideas are more like mushroom spores than lightning strikes: they spread organically and often pop up in several places at the same time. In short, don’t worry about your ideas being stolen. You have more to lose by hiding yourself from the world. Get the world ready for your launch.
7. “We’re in due diligence with a VC.” Fundraising is a numbers game, and most due diligence never leads to an allocation. Due diligence should not be used as an excuse to stop fundraising. In fact, it should encourage you to redouble your efforts.
8. Exclusive focus on one category of investor. This is related to #4. Don’t be selective before you have options. As the saying goes, you miss every shot you don’t take.
9. “We’re not interested in talking to associate-level staff.” Associate-level staff are the gatekeepers of the industry, and C-level staff operate largely on their recommendations. Never underestimate the value of anyone who could be a path towards getting funded.
10. Issues around focus and organization. This is less of a misconception and more a point of frustration. Raising money today is a hard job that requires laser-like focus, determination, and a highly professional level of organization. Color-coded spreadsheets won’t cut it. Make the commitment from day one to make a minimal investment in the right cloud infrastructure to enable your campaign.
Avoid these mistakes and you’re well ahead of the curve. Best of luck and happy fundraising!
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