The definitive guide to mistakes founders make raising money

These are the common mistakes that founders often make when they meet with investors to raise money. When I started raising my seed round for my last startup Written I also made many of these mistakes. When I fixed the errors of my ways I was able to quickly (within a few months) raise more than a million in seed funding.

As I mentor other startups I find that many make these same mistakes and when they correct them they too find success in raising money. So I thought I’d write them all down in sort of a definitive guide to mistakes that founders make.

Actually remembering to ask for money

I can’t tell you how many founders forget to actually ask investors for money. They setup meetings, pitch their company, receive feedback and then leave all without getting a dime. The trouble is that they never actually asked for money. Just because I’m an investor doesn’t mean that I can read your mind. I will most likely never offer you money, you need to ask me for it.

Its going to be tough to get money from me. I don’t want to give it up easily, otherwise every startup that walks through my door will bleed me dry in a matter of weeks. So not only are you going to need to ask me for it but you are going to need to pry it out of tightly gripped fingers.

The best advice I can give founders is to be persistent and never take “no” as a definitive answer. Investors can and will change their minds if you convince them to. I’ve received a handful of “no” when I raised Written’s seed round and was able to quickly change them to “yes” by listening carefully to why the investor wasn’t interested and then adjusting my company to meet their needs. More on that later.


Listening to the investor’s feedback

This is probably one of the hardest things to do when pitching your company to an investor. Once the investor starts asking tough questions your first reaction is going to be to try and respond to change their mind. If an investor says that your market is too small you’ll quickly try to convince them that the market is big. If the investor says that there is too much competition you’ll try to convince them that you have a competitive advantage.

The problem here is that while you are busy battling each of these negative reactions to your startup pitch you aren’t actually soaking in the critique. Many of these investor criticisms are going to be valid and if you want to raise money from the investor you are going to need to address them in a way that satisfies them. It most likely won’t be in the first pitch meeting.

So listen very carefully to what the investor takes issue with. If the invest decides not to invest in your company, you’ll have a list of issues that you can address and *maybe* change their mind. I had an investor tell me that Written was an SEO company and he doesn’t like to invest in SEO companies. He said “no” to me. Over the next few months I convinced him that Written was not an SEO company and he eventually invested. One day over a drink he said to me:

> I’m really impressed that you convinced me to invest in your company. My investment was all because of you — because you listened to my issues, demonstrated over time why I was wrong and convinced me that you are someone I wanted tod work with. Moreover you showed me that you can overcome difficult obstacles and don’t take no for an answer.

Listening isn’t easy though. When someone starts ripping into your hard work you’ll go right into defensive mode. Your brain will start coming up with all the reasons why this investor is wrong. Try to resist this urge. It takes a lot of practice but once you become good at it not only will you be able to better raise money but you’ll be great at sales.


Leaving the meeting without an answer

There are three key things that must happen during your meeting. You should never walk out of an investor pitch without getting one of these three things:

1. “Yes” I will invest in your company.

2. “No” I won’t invest in your company and here are the reasons why.

3. “Maybe” but I need more information. Lets set a date for our next meeting.

If you walk out of an investor meeting without securing one of those three outcomes you will break the momentum of your investor talks. You want to keep the flow moving so you need to reach one of these outcomes.

The hardest outcome is actually getting the investor to say “no” and deliver the reasons why they won’t invest. The thing investors fear the most is missing out on a big opportunity. When you look at the performance of their funds its usually one or two whales that make them successful. So they MUST be invested in the whale or else they fail. With that in mind the investor doesn’t want to say “no” because they might change their mind down the road. Especially if you break out and start exploding with growth. So what they do is they say “not right now” or “the time isn’t right” or “I’d like to see a little more growth”. The problem with this is that it doesn’t give you a definitive “no” and it doesn’t give you any insight into why they don’t like your company so you don’t know what to fix.

You’ll need to be very persuasive and persistent to get them to say no. I often focus on the reasons or issues that they have problems with. For example consider this dialog with an investor:


**Investor: you don’t have enough traction to prove that there is a need for your service.

Founder: what level of traction would you like to see to make you feel comfortable that there is a market for my service?

Investor: Well, its not so much a number. I just want to see a big company sign a one year agreement.

Founder: Just one big company?

Investor: How about three?

Founder: Okay, so if I get three big companies to sign a one year contract you’ll invest?

Investor: Maybe.

Founder: What other issues would I need to resovle for you to feel comfortable?


In that sample dialog you can see the founder trying to extract criteria for what the startup would need to do to make the investor feel comfortable with the investment. Its a bit like a negotiation but when done right you can actually put together goals which when you reach will likely end with the investor putting money into your company.

Another tip for founders it to keep the investor updated as you reach milestones toward those goals. In the previous example the investor wanted three companies with one year contracts. I’d update the investor after signing each of those companies. So after the first company:


Founder: I signed my first one year agreement with a big company!

Investor: Awesome! You are on your way!

Sometime later….

Founder: I signed my second one year agreement with a big company!

Investor: Great! You are doing exactly what you said you would do. I’m impressed, I didn’t think there was a market and you are proving me wrong. I like investing in founders who do what they say.


Remembering to build a relationship with your investors

Investors want to invest in people that they like. One common mistake that founders make is that they don’t leave any time to get to know the investor. They assume that in one quick meeting the investor will have all of the information they need in order to make a decision. This is rarely true. Instead, the investor will want to get a feel for what you are like, they will want to meet your team and maybe even see what its like to work with you.

When I meet with investors I look for questions that could lead for opportunities for us to work together. For example:


Investor: How big is your market?

Founder: Its really big.

Investor: You’ve done the bottom up approach but have you thought about a top down approach?

Founder: No, but that would be a great exercise for us to work on together. It will allow you to see how I think about my business and see if we have any chemistry.


Sometimes investors will want to walk through your “size of market” other times they will want to take a look at your sales forecasts. These are all problems that have no clear answer but are great opportunities to set a follow up meeting so that the investor can get a better feel for you and your company.

When raising money for Written I was able to distill my seed round into a few key goals by working closely with my investors. Those meetings were extremely valuable because they allowed us to vet our investors and our investors to vet us.


Say “I don’t know” when you don’t know the answer to a question

Never make up an answer in front of an investor. This will kill your credibility faster than a speeding bullet. Without credibility you won’t raise money from that investor. Ever.

Investors will often ask you questions that they know the answer to in order to see your reaction. It is always better to say you don’t know than to make something up.

When I was raising money for Written one of my investors asked me a really difficult question. I told him that the question was really challenging but it would be great to spend some time with him working through it. We spend a few sessions together talking it through and the results formed the basis for our first year goals. It also convinced my investor that I’ve got integrity and would be a great partner.


Get warm introductions to investors

You always want a warm introduction to an investor. They are easy to get and they make a big difference. Warm introductions are intros that come from people that the investor knows and trusts. The best warm introduction will come from the CEO of one of their portfolio companies.

It isn’t hard to get a warm introduction and most CEO’s would be happy to make them for you. There is however some rules to asking for introductions. If you follow these rules you will do well.

When you ask for an introduction you need to make it as easy as possible for the person who will be doing the intro. You need to draft an email that they can simply forward to the investor. The email should contain two key elements:

1. Why do you want to meet this investor
2. Background about you and your company (elevator pitch)

For example:


Hey John Smith,

I’d would love an introduction to Investor X. I’ve read a lot about investor X and I think his passion for investing in the automobile industry will make him a perfect fit for my company’s opportunity.

Let me give you a little background on my company. My company makes x which is great for customers becuase it increases safety and revenue for auto makers. I already have some traction with two big auto makers buying my product.

This isn’t my first company, I’ve start two other companies. Here is my linkedIn profile:




I don’t like to insert my pitch deck in email introductions. I like to wait until I meet with the investor so that I can walk him or her through the deck. Just give them a little bit of information — a taste so to speak so that they want more.

With a proper email introduction you are certain to get a nice warm introduction. If all goes well you’ll have your face to face meeting in no time.


Make sure that the investor’s fund thesis matches your startup’s opportunity

All VC funds have a thesis for how they are going to invest their capital. Make sure that you properly align your startup’s opportunity with the thesis from the investors you meet with. Otherwise you are waiting their time and your time.

Partners in a VC fund have a responsibility to their limited partners (those that invest in their funds.) They’ve pre-sold those investors on a thesis for how their money will be invested and they are held to that strategy throughout the lifetime of the fund. For each investment they make they file a memo to the other partners explaining why that particular investment fits the fund’s thesis.

You can often guess the thesis a VC is investing to by looking at their website. Examine the sorts of startups that the VC has invested in. They are likely similar in certain key ways. The website will likely explain the thesis too on the “about us” page.


Thinking that you can raise money while running your company

Raising money is a time intensive process that will go on for quite some time. It is very difficult to raise money while also working on your startup so you should have one founder focus on fundraising while the other focuses on the business. This is also why single founder companies often struggle to raise money. It really isn’t feasible (although some have succeeded.)

For a CEO expect that a big portion of your time will be spent managing relationships with investors and raising money. Even after raising a successful round you’ll go right back into raising the next round before too long.

I like to tell other CEO’s that succeeding on a big challenge simply moves an even bigger challenge into view.


Going to your favorite investor for your first pitch

Don’t do it! You might love this investor and think that they love you too but your first pitch is going to go badly. Pick an investor that you don’t really care to screw up with and pitch there first. When you get the hang of it and some traction then go to your favorite investor.

When I started raising money for Written my first pitch was to Austin Ventures which is the biggest VC in Austin. Its the mack daddy of investors and my pitch was a disaster. One of the partners in the meeting basically said I was “uninvestable.” I only answered one question wrong but that was all it took.


Don’t let them flick the bozo bit

I heard this one from a partner from a VC. The bozo bit is a switch that when set means that you are either:

A. Not invest able
B. Not going to be CEO of the company for much longer (if they do invest.)

The bozo bit gets flicked when you answer a question wrong. It happens really fast and there isn’t anything you can do to fix it. Take this question for example:

Investor: what do you plan to do with the money we invest?

Founder: I want to spend it on marketing and hiring a person for sales and a person for operations and for some Google Adwords.


That simple answer is likely to cause the VC to flick the bozo bit. The problem with the founder’s answer is that they aren’t really telling the VC what they want to hear. The VC isn’t asking what you plan to buy with the money, they are asking what they get from investing it. A better answer:


Founder: I plan to use the money to increase our sales from $20,000K MRR to $100,000K MRR by the end of the year. That will validate that enterprise companies get value from our product. I also plan to launch an Android version which should get our user base to 1 million users by the end of the year proving that we can generate good traction. At that point we will be ready to raise our series A and start scaling.


Setting up a meeting with an investor without getting a warm intro often flicks the bozo bit. There are many other things that can trigger this aweful scenario. Just be measured in your responses.


Investors in the same community are likely friendly

Investors in the same community are often friendly and in many cases talk about the companies that they like or dislike. If you live in Austin for example and you pitch one VC there, that VC will likely talk about you with the other VC’s. So if you screw up badly with one you will have trouble with the others.

On the flip side if you raise money from one VC you will likely gain the interest of the others too.

You can use this to your advantage if you are savvy.



Hopefully this is helpful to your efforts to raise money. It is a really difficult process and one that can easily go wrong. Don’t fret, the early mistakes are easy to overcome and will not prevent you from raising a successful round.

Just hang in there and you can prevail.

This article was originally posted on Definitive guide to mistakes founders make raising money on

By joshkerr

Josh is an 8x startup founder and angel investor.

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