Raising capital for a business, whether it is a start-up or a mature company, can be an extraordinarily frustrating and time consuming experience. Entrepreneurs want to operate and grow their business, not raise capital. But the fact is that for most businesses, the entrepreneur or CEO is responsible for raising capital.
When attempting to raise capital, CEO’s very often make some crucial mistakes. These mistakes not only can dictate whether or not the business will be able to raise capital, but also how long it will take and the ultimate cost of the capital. Using the wrong assumptions, raising capital can be impossible.
We believe there are 5 common mistakes that CEO’s make when raising capital:
1. Unrealistic Expectations of Value
Most of us has watched Shark Tank at least once. Just watch one episode and you will likely see this mistake. The entrepreneur goes to professional investors with a company that did $100,000 in sales last year and confidently tells the Sharks he will sell 10% of his business for $1 million. What’s the chance of this CEO getting funding? Zero.
With few exceptions, investors will pay for what you have already done – not what you believe you will do in the future.