One of the most significant challenges that entrepreneurs face is the fundraising challenge.
Nonetheless, entrepreneurs neglect the mental side of this task, and do not take into account that this disregard is in many cases is what blocks them and stands between them and the coveted funds.
As with anything in life, the first step on the way to solving a problem is to be aware of it.
So what are we talking about when we talk about the mental aspects of raising capital?
1. Lack of ability to put yourself in the mindset of the investor
Meeting with investors and the fundraising process is just the beginning of the relationship between entrepreneurs and investors.
Like any relationship, it needs to be nurtured, except in the event that entrepreneurs and investors expect that the relationship will be nurtured by the entrepreneurs.
When it comes to a relationship, first and foremost it is necessary to establish excellent communication.
Investors often say that entrepreneurs find it difficult to understand their interest in the venture presented to them. Entrepreneurs are sure that investors say “yes” when in fact they mean “maybe”, do not study the investors and do not research them before the meetings. Furthermore, they do not follow up, do not understand their language, do not understand who they expect to speak or present the investment opportunity at the meeting (only the CEO and not the CTO for example even if his/her knowledge of the product is better) and so on.
Investors also say that they meet entrepreneurs who are solely focused on their product, and do not demonstrate an understanding or interest in the structure of the venture capital fund and in the dynamics of the venture capital world.
This lack of knowledge, interest, and understanding of the connection between these issues and the work of investors and their decision-making process, already present for them fertile ground for a non-alignment of interests and increase the chances of turning down the investment opportunity.
2. Mental preparation of the entrepreneur himself
The fundraising process is a long process.
An average round of fundraising will include about 50 (!) meetings, and usually only between 1% -10% of the ventures succeed in raising funds.
The fundraising process erodes and exhausts entrepreneurs, if only because it contains two inherent difficulties: it is long and involves a lot of refusals.
Such processes, naturally, require us to shift towards a very positive mindset.
Many entrepreneurs, especially the inexperienced ones, will experience many refusals, which may gradually even impair their ability to function in subsequent meetings.
It is quite clear that after a lot of negative responses, the motivation, adherence to the goal, judgment, willingness to open the mind and listen, and the ability to convincingly present the company begin to deteriorate, and accordingly – the overall performance deteriorates.
So when embarking on a fundraising round, you should be aware of what you will be facing.
3. Do not embark on adequate preparatory work
For many entrepreneurs, this is the first fundraising round.
Like anything we do for the first time, our level of experience, understanding and knowledge is relatively low.
The way to overcome this problem is to engage in meticulous, deep and comprehensive preparatory work, and get the fundraising process as well prepared as possible.
A critical point that is important to understand is that investors have been doing these meetings for years, and in fact, this is their job. The average investor will meet hundreds of entrepreneurs during the course of a year.
Entrepreneurs only raise funds from time to time and meet at best with dozens of investors during the same time period.
If this is taken into account in addition to the fact that investors are on the supply side and entrepreneurs are on the demand side, the immense importance of proper preparatory work is even more vital and should address:
- What investment conditions do you expect? What conditions do the investors you will meet generally offer?
- What are the venture profiles the investors you meet tend to invest in? (Are they verticals that are more interesting to them such as fintech or health, and at what stages do they tend to invest? Is it sees, early-stage, round A or higher?)
- What is the investment strategy of the investors? Has it changed recently?
- What ventures have they invested in recent years?
- Have you made a mockup of the product if it is not ready yet? Is the mockup interactive?
- Will you present the product so that investors can really understand how it works?
These are just some of the questions that you should be ready to answer and convincingly.
It is common to think that in the early fundraising stages, such as early-stage or round A, investors are more interested in the team and less in the product.
A well-prepared investment case will present your staff in a much more positive light.
4. Unwillingness to learn from the process
The important thing in raising money is not the money.
Sounds surprising, right? After all, you came to raise funds.
It is true that not all investors are happy to give feedback on a negative answer but there are some who will definitely be happy to share their insights and decisional process.
The feedback you will receive is the one that will help you improve your understanding of the investment world and what investors are looking for. It will allow you to be better prepared the next time you meet an investor.
Many entrepreneurs avoid raising questions during meetings, some are sometimes in love with the product and are sure that investors do not understand what they are talking about, or even like to be contrarian and will go out of their way to be conflictual with investors.
Both of these mindsets prevent having a deep and instructive dialogue with investors, an attitude that has a significant potential to determine the future of your venture.
Remember that asking questions actually shows commitment, and if we talked at the beginning of the article about a relationship between entrepreneurs and investors, then we all probably want to find ourselves in a relationship where the other side shows involvement and commitment towards us.
It is very important to me in this article to raise awareness of the mental side that entrepreneurs hardly talk about.
As an entrepreneur myself, who has gone through this Sisyphean process and experienced firsthand some of the phenomena I have mentioned above, it is critical for me to talk about the elephant in the room.
When it comes to athletes or artists, it is clear to all of us that the mental side has a significant impact on their successes and performance.
This is the case for entrepreneurs too.