- Steer clear of horrible startup funding advice that can negatively impact your business.
- Don’t pivot too often or raise too much money, as even these small missteps can negatively impact your business.
- Focus on finding the right investor, doing thorough due diligence, and knowing when it’s time to take a break from fundraising.
- With the proper knowledge and commitment to success, you can give your business the best shot to get funded and achieve success.
- 7 Figures Funding offers startup funding solutions to customers in Chicago, IL, and the surrounding areas.
If you’re a startup, you’ve been pitched by an angel investor. And if you’re like most startups, you probably only have a little money to spare. So when someone offers to invest in your company, it’s tempting to take their advice – even if it’s horrible! 7 Figures Funding discusses 12 pieces of terrible advice that startup funding. If anyone ever gives you any of these pieces of advice, steer clear!
12 Horrible Startup Funding Advice You Should Ignore
1. Don’t Give Up Equity for Nothing
One of the most common pieces of startup funding advice is to “never give up equity for nothing.” This advice is often given to startup founders considering taking on debt or convertible notes to fund their businesses. While it is true that giving up equity can be dilutive to a founder’s ownership stake, there are situations where it makes sense to do so. For example, if a founder is confident that their business will be successful and can raise additional funding later, giving up equity may not be a big deal.
2. Don’t Give Up Too Much Equity
Another piece of advice that startup founders often hear is to “not give up too much equity.” This advice is usually given in the context of negotiating with investors. Startups typically want to raise money from investors in exchange for a minority stake in the business. However, giving up too much equity can dilute a founder’s ownership stake and make it difficult to maintain control of the company. As such, founders need to think carefully about how much equity they will give up before entering into negotiations with investors.
3. Don’t Take On Too Much Debt
Startup founders often hear the advice to “not take on too much debt.” This advice is usually given in the context of raising capital from investors. While it is true that taking on debt can be risky, there are situations where it makes sense to do so. For example, if a startup needs capital but does not want to give up equity, taking on debt may be the best option. Additionally, debt may be a good option if a startup has substantial collateral, such as property or equipment.
4. Don’t Overvalue Your Company
The most common advice that startup founders receive is to “not overvalue your company.” This advice is usually given in the context of negotiating with investors. When startups are looking for investment, they typically need to provide potential investors with an estimate of the company’s value. However, suppose a startup overestimates its value. In that case, it may need help raising money from investors or may end up selling its shares for less than they are worth. As such, startups must have a realistic understanding of their company’s value before entering into negotiations with investors.
5. Don’t Undervalue Your Company
While it is essential for startups not to overvalue their companies, it is also crucial not to undervalue them. If a startup sells its shares for less than they are worth, the founders and early employees will miss out on potential profits. Additionally, suppose a startup undervalues its shares. In that case, it may need help raising money from future investors as they will believe the company is not worth investing in. As such, startups need to have a realistic understanding of their company’s value before negotiating with potential investors.
6. Don’t Take Money from Friends and Family
Another bad piece of advice is that entrepreneurs should avoid taking money from friends and family. While it is undoubtedly true that taking money from loved ones can complicate personal relationships, there are also many benefits to doing so. First, friends and family are often more understanding and flexible than professional investors regarding repayment terms and schedules. Second, they are typically more willing to invest smaller sums of money, which can be helpful when starting a business on a shoestring budget.
7. Don’t Take On Too Much Debt
Taking on too much debt can also be detrimental to your startup. While some debt is often necessary to get a business off the ground, too much debt can strain your finances and hinder your ability to grow your business. Therefore, it is essential only to borrow what you need and have a solid plan for repaying any debts you incur.
8. Don’t Neglect Your Personal Life
Many entrepreneurs mistakenly believe they must sacrifice their personal life to succeed in business. However, this could not be any further from the truth. Neglecting your personal life can lead to burnout and negatively impact work performance. Therefore, it is crucial to maintain a healthy balance between work and play to succeed in both areas of your life.
9. Don’t Worry About the Competition
One of the worst pieces of startup funding advice is not to worry about the competition. While it’s true that you shouldn’t obsess over what your competitors are doing, you also should pay attention to them. Keeping an eye on your competition can give you valuable insights into what works well in your industry and what needs improvement.
10. Focus on Your Product, Not Your Revenue
Another piece of advice that could be better is to focus on your product rather than your revenue. While creating a great product is essential, ensuring that your product generates revenue is vital. If your product isn’t generating revenue, it will not be sustainable in the long run.
11. Don’t Be Afraid to Pivot
Pivoting is when a startup changes its direction to address a market opportunity or needs better. While it can be a great way to improve your business, you should do it sparingly. If you pivot too often, it will be easier for investors to trust that you have a clear vision for your business.
12. Don’t Raise Too Much Money
Raising too much money can be detrimental to your business. If you raise too much money, you may become complacent and stop looking for ways to improve your product or service. Additionally, raising too much money can make it difficult to achieve profitability.
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