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7 Funding Mistakes That Startups And Entrepreneurs Should Avoid

Funding Mistakes

Many businesses have failed not because the idea wasn’t a billion-dollar idea but because of funding mistakes that were made out of ignorance.

See Also: 35 Booming Business ideas and step-by-step guides to start them; a strategic and financial breakdown of the most lucrative businesses in Nigeria.

You are a budding entrepreneur and you have just thought of a multi-million Naira business idea. What do you do first? Well, first, you want to write out your business plan and understand your market. But after you have written your business plan, what do you do next? Unless you have a large stash of savings or inheritance money somewhere, your next step would be seeking startup funding. Although bootstrapping is an option, for many business models, you won’t get anywhere without some initial investment. You’ll need to spend money to make money.

Start Your Business in 30 Days Even If You Don't Have An Idea
Start Your Business in 30 Days Even If You Don’t Have An Idea

It can be difficult to know how to go about seeking startup funding, especially if one is new to the business world. Also, if it’s your first time trying to grow a business, you are more liable to making mistakes. Never fear, we got you. Below, we’ve outlined 7 funding mistakes that entrepreneurs and startups should avoid when seeking funding to take their idea to the next stage.

Watch this video to see all the funding mistakes that entrepreneurs make. Also, subscribe to our channel to get business ideas and insights.

Funding Mistakes To Avoid When Seeking Start-Up Funding

1. Lacking a Good, Solid Business Plan

As discussed previously, the first thing you want to do before seeking funding is to craft a good business plan. This plan includes an analysis of daily spending estimates, the market for your product, success metrics, and so on. If possible, it should also include projections of spending in a few weeks or months. An accurate cash flow analysis is necessary for investors to take you seriously and take a chance on your start-up.

See also: Business Plan – How To Write A Business Plan Step By Step For Your Business

2. Going Into Too Much Detail Too Early

Okay, we just said a good business plan is important to winning over investors. However, too much detail can be a bad thing. When pitching your idea for the first time, you might feel the need to go into painful detail about every feature of your business. While it’s crucial for you to know these details, at first glance, investors want a broad view of your company. It is also possible that you know the industry better than they do, resist the temptation to spill everything. The details come later.

3. Exploring Only a Few Funding Options

It can be overwhelming to sit down and assess all the funding options available to you. Still, it’s a crucial part of your journey. Typical methods of getting funding include getting a bank loan, borrowing from family and friends, or taking out long-time savings.

If you don’t have convincing collateral, the bank loan will not fall through, and your family and friends might not have enough to spare to aid your business. However, there are other avenues to explore. Some of these are government grants and loans; for several business sectors in Nigeria, the federal government provides grants to encourage growth within that sector. One example is the government grant system for agriculture businesses.

Other funding avenues are non-profit organisations and private investors. Seeking several sources of capital improves your chances of getting the money you need. Also, your networking exposes you to the big players in the business world as well as potential mentors.

4.   Reaching Out To Investors Without Doing Your Research

The investors or grants you target for funding should mainly be organisations that have funded businesses like yours or complementary businesses. This is because, they will be more likely to support your start-up, as it is familiar. Furthermore, they will have something to offer in the way of mentorship as you begin to grow your business.

During your research, it is also wise to make note of the criteria an investor uses to decide on what businesses to fund. These criteria could be the market value of your business idea and proven leadership abilities. That being said, when seeking start-up funding, it is good to think outside the box. Investors who do not normally fund your kind of business might still be interested if you can show them how your idea can optimise their own market.

5. Asking For Too Much Or Too Little Money

Go from idea to starting your business in 30 days
Go from idea to starting your business in 30 days

When seeking startup funding, you might be tempted to ask for more money than you need in order to feel comfortable. However, if you actually get the amount you’ve asked for, it is likely that you will start losing your sense of urgency and the drive a business needs to survive.

On the other hand, you could assume that your chances of receiving funding are better if you ask for a smaller amount of money than you actually need. This doesn’t work. First, most investors will see that you have underestimated the funding needed for success. They will believe that you don’t know what you’re doing. Second, even if you do secure the funding, the money will run out very soon because it was never enough, to begin with. It is always best to ask for what you need.

Truthfully, it can be difficult to know exactly how much money your startup needs. Depending on the business, it could be a very wide range. In this case, talking to a financial advisor might be the best way to go.

6. Giving Away Too Much Equity

In exchange for funding your business, many investors will want a sizeable part of your company. In other words, they want a juicy share of equity; this is an agreement that cannot be reversed. As you go through several funding rounds, different investors will ask for stakes in your company, but giving away too much will be a mistake. This one of the major funding mistakes tech entrepreneurs make.

Ideally, founders should still hold the majority stake even after receiving start-up funding. When a business becomes profitable, no entrepreneur wants to end up being a minority owner in his or her own company.

7. Getting Swindled

“419-ers” do not discriminate amongst targets. There are cheaters in every industry. If a funding opportunity seems too good to be true, most times, it is.

A scammer might coerce you into entering an agreement whereby you pay an upfront, non-refundable “processing fee” and in return, they provide a loan. However, what happens is that later on, they deny you your loan for no reason at all. Most legitimate investors will not ask you to drop money before they invest in your business idea. Be wary!

Though these funding mistakes might not seem that serious, they are very common amongst entrepreneurs. Finding funding is often one of the most difficult parts of founding a business. Improve your chances of reaching your goal by doing some research on the funding process and avoiding these 7 mistakes. Before you know it, your startup will be on its way to success.

Did you know that Entrepreneurs.ng offers highly personalised one-on-one business consulting? We can craft your entire business plan on a single sheet of paper and help you maximise your profits with proven strategies. Get in touch with us for more information!

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