Here, we tackle five of the most common missteps founders make while seeking venture capital and provide some top tips on how to avoid slipping up on your fundraising journey.

Mistake number one: Starting your fundraising (usually) too late or (sometimes) too early

What you need to be doing instead: Timing is a critical factor that many founders get wrong. Our research found that more than half (53%) of investors view a lack of readiness, which includes premature or delayed fundraising efforts, as a deal-breaker.

Founders often underestimate the time needed to nurture investor relationships, build a compelling narrative, and develop a robust business model. The ideal time to start is when you have a solid 8-12 months of runway left. This window provides ample opportunity to engage with potential investors, refine your pitch, and address any feedback.

What’s more, founders can not only misjudge the start time but also the number of meetings it can take to reach an indicative offer. For instance, a third (34%) of investors typically require five or more meetings before making a preliminary offer, especially as the business grows in complexity and scale. These engagements are not mere formalities; they’re the building blocks of trust and partnership that culminate in a successful investment.

Of course, the length of the deal process itself differs based on the funding stage you’re at. For pre-seed investments, you might wrap up in a relatively brisk one to three months, but as you progress to Series A and beyond, the process naturally elongates, sometimes taking three months or more.

Mistake number two: Underappreciating what ‘deal readiness' means

What you need to be doing instead: Being 'deal ready' is your ticket to serious consideration.

The issue is, just 32% of investors believe that founders are usually deal ready when they contact them. And with over half of investors stating they will walk away if a company isn’t properly prepared, which includes having a complete and well-organised data room, that’s a big mistake.

Your financials, business model, market analysis, and other key documents should be meticulously arranged and easily accessible before you start engaging potential funders.

Think of it as preparing for a big exam – you wouldn’t show up without studying all the material. Similarly, ensure your data room is comprehensive and reflects the seriousness and professionalism of your approach.

Mistake number three: Over or underestimating your business’ value

What you need to be doing instead: Our report highlights a common stumbling block: valuation misalignment.

Many founders either overvalue their startups, driven by passion and ambition, or undervalue them, underestimating their full potential. In fact, 90% of investors believe that founder expectations are misaligned on the topic of valuation at least some of the time. Almost a third stated this was the case most of the time.

This can lead to either roadblocks in dialogue or money left on the table. That said, while valuation misalignment is common, it’s fortunately rarely a deal breaker (94% of investors say it rarely or never obstructs a deal). What matters more is the willingness to engage in constructive dialogue and reach a mutually agreeable number.

Balance aspiration with market realities. Conduct thorough market research, understand your sector's valuation trends, and build a compelling, data-driven case for your valuation.

Mistake number four: Underestimating the importance of numbers beyond revenue

What you need to be doing instead: Investors aren’t just looking at current revenues, they’re investing in the long term so are looking at a wide range of figures that give them a better long term view of the potential of their investment.

Projected profit levels are, of course, one such example. In today's investment climate, a vague promise of future profitability won't cut it. Investors are looking for a well-defined and achievable path to profitability.

Moreover, investors’ benchmarks for profitability are stage-specific, as pinpointed in the report. The timeline for a start-up to pivot from burning cash to earning profits is typically gauged at 36-54 months for pre-seed stages, reflecting the early nature and high risk of such investments.

As ventures mature to the seed stage, investors look for a shorter horizon for profitability, usually between 21-39 months. By the time a company reaches Series A, investors’ patience sharpens, expecting profitability within a brisk 12-24 months.

Regardless of the stage you’re at, your financial projections and business model should clearly outline how and when you anticipate becoming profitable.

Another number to put some thought into is equity stake. Pre-investment, our research suggests for founders to aim to retain about 70% equity if you’re approaching pre-seed investors, 50% for seed rounds, and around 30% by the time you're at Series A.

Lastly, bear in mind that investor scrutiny will also likely extend into areas such as your own salary. Prudent compensation, after all, is a signal of a founder’s fiscal responsibility and alignment with the long-term interests of the business. Expectations for average founder salaries at the pre-seed level hover around £59,130, escalating to an average of £77,931 for seed stage, and reaching £121,515 by Series A funding.

Mistake number five: Treating fundraising like a mere transaction

What you need to be doing instead: Investors provide not only capital but also guidance, industry insights, and networking opportunities.

Building a relationship with investors should be seen as a fundamental element for long-term growth and success. It’s particularly important to align yourself with investors who understand and are invested in your sector. This means doing your homework to identify investors whose goals and values align with yours, and who can bring more to the table than just money.

An investor that favours the SaaS sector (representing 71% of our sample), for example, brings more than just enthusiasm for your business. They likely have a keen sense of the market, competitive landscape, and customer acquisition strategies that can help steer a SaaS company towards exponential growth.

Likewise, investors who have a deep understanding of sectors like HealthTech (74% of our sample) or e-commerce and AI/ML (both 63% of investors), can provide more than capital – they can offer a roadmap to navigate these complex and rapidly evolving industries.

Remember, it's a long-term partnership, not a one-time transaction.

What’s your next move?

Navigating the fundraising process is like a strategic game of chess. Each move must be calculated and intentional.

By understanding and addressing the common pitfalls outlined above, you can position your start-up for a successful fundraising round. Remember, it's not just about securing capital; it's about building a foundation for your start-up's future growth and success.

Want to make sure you’re fully equipped to make the right moves on your fundraising journey? Read the full Venture Fundraising Landscape Q3-23 report, available here now.