The most critical objective of every company especially startups is raising Capital to finance their operations. The reality is that almost every startup needs to raise capital to grow and expand. It is unusual for your startup to start making money if you do not raise capital.

Furthermore, it is highly improbable that you will become profitable without raising enough funds to finance your business activities. Unfortunately, some firms rush into the capital raising stage too early and risk losing out on investors. Here are some capital raising mistakes that you should avoid.

Lack of Traction

Only a few firms can successfully raise capital without significant traction. In some cases, it might be possible if you can assemble a team of professionals. But even then, most investors expect some degree of customer traction. Of course, you don’t need to show them that you have a ready-to-launch product necessarily. However, you should endeavour to identify a common problem that your product intends to solve.

Raising Too Early or Too Late

Most companies screw up their capital raising by either doing it too early or too late. Unfortunately, both can be terrible for your business. It is important to get the timing right – timing is vital for your team, market, and valuation. Therefore, you must research the best time to raise capital for your specific niche and business. To be grounded, give yourself between five to seven months to raise capital for each round of funding. Most companies claim six months was their best period for raising capital – remember it does not happen overnight.

High Expectations of Value

Most investors will pay for what you have done not what you believe you’ll do in the future. Most often, sales are valued as a multiple of the last twelve months earnings or revenue. At times, a fast-growing firm can be given credit for the quarter results annualised, but this is the exception rather than a rule.

Investors are usually unimpressed with a great idea and a startup that models earnings of 5 or 10 years out. Discounting the cash flow back to today can be worth $15 million on paper, but an idea – even a great one that only needs fundraising to commence – is not worth anywhere close to the amount stated. If you are not sure of the amount of value to expect, consider hiring an investment banking professional. They will provide you with an expected value before the formal engagement with investors.

Chasing the Wrong Investors

Another thing worth noting is that not all investors are the same. Contrary to popular belief, an investor does have a niche or niches. They usually won’t invest in projects that are outside their target niches. Just because they investor on a project you know about doesn’t necessarily mean they are right for your business. Do an extensive research and understand what a particular investor is on the lookout for – determine if they are the right fit. It is also important to ask yourself why you might want one investor over another.

Lack of Strategy

Regardless of knowing what you want, you still need a well-laid strategy that entails planning the whole capital raising process. It is essential to make the right decisions about your financing strategy, mainly if it is a startup.

In Conclusion..,

These are the five most common mistakes businesses make when raising capital. Thus, it is important to weigh your options carefully; sometimes no investor is better than the wrong investor. But, most importantly, try not to find yourself guilty of making one or more of the above mistakes.