When it comes to raising funds for your business, there are common mistakes that entrepreneurs often make, which can have long-term implications.
In this blog, we will explore three key pitfalls to avoid when seeking financial support: giving away too much too soon, not considering the long-term control implications, and neglecting thorough research on funding option
One: Giving away too much too soon
One of the biggest mistakes you can make is giving away too much of your company when you’re trying to raise funds.
Even though a deal that involves giving up a substantial portion of your business might seem great initially, it can end up costing you a lot more in the future.
Try your best to maintain control and explore other options for raising money or getting financial support.
Two: Not doing maths on long-term implications
Not performing proper calculations and analysis on the long-term control implications of your business can lead to several pitfalls:
- Loss of Ownership: Without understanding the impact of funding arrangements on your ownership stake, you may unknowingly give up a significant portion of control over your business.
- Lack of Decision-Making Power: Insufficient consideration of long-term control implications may result in a loss of decision-making authority.
- Conflict with Stakeholders: Inadequate assessment of control dynamics can lead to conflicts and disagreements with investors or partners. Misalignment in decision-making authority or diverging interests can strain relationships, hinder progress, and impact the overall success of the business.
- Inability to Implement Strategic Changes: Without a clear understanding of long-term control implications, you may find it challenging to execute strategic changes or pivot your business when needed.
- Difficulty in Attracting Future Investors: If you have given up a significant amount of control in the early stages without considering the long-term implications, it may deter potential future investors.
Three: Not doing research on options
Not conducting thorough research on funding options can lead to various pitfalls:
- Suboptimal Funding Terms: Lack of research can lead to accepting funding on unfavourable terms. Without exploring different options, you may not be aware of alternative financing structures, interest rates, repayment terms, or equity arrangements that could better suit your business needs. This can result in higher costs, restrictive conditions, or loss of control.
- Missed Opportunities for Grants or Incentives: Many industries and regions offer grants, subsidies, or tax incentives to support specific types of businesses. Without proper research, you may overlook these opportunities, missing out on potential financial assistance or cost-saving measures.
- Inadequate Risk Mitigation: Researching funding options allows you to assess the associated risks and select the most appropriate sources that align with your risk tolerance. Without understanding the risks, you may unintentionally expose your business to high interest rates, or unfavourable repayment schedules, which could strain your financial stability.
- Incompatibility with Business Goals: Not researching funding options can lead to securing funds that are not aligned with your business goals or long-term strategy.
- Missed Networking and Partnership Opportunities: Conducting research on funding options provides opportunities to network and connect with potential investors, lenders, or strategic partners.
Many of the recruiters we speak with regularly who are keen to explore starting their own agencies lack key information on the options available for them to receive funding to launch.
We have prepared this resource to help future founders better understand the routes and models open to them, and to make the best choice for themselves and their business.
Access our Quick Guide to Start-Up Funding guide
Please note that this guide is produced and shared for informational purposes only and should not be considered investment advice.