5 Mistakes Entrepreneurs Make with Start-up Funding

Ask practically anyone you meet and you’ll find out that they have “the next big” business idea. We all think we do. So if that’s the case, how come there aren’t more entrepreneurs out there? How come people aren’t leaving their day jobs in a mass exodus, following their dreams of entrepreneurship?

It takes money.

An idea will only get you so far. But unless you have the financial backing to turn that idea into a reality, you don’t have much of anything. That said, the average person often doesn’t have the funding to give their idea a go, and the fear of leaving a steady paycheck is enough to keep that dream stuck inside their head, where it will never amount to anything.

But not you. You’re an entrepreneur at heart. It’s in your blood, and you’re not going to rest until you give it a go. So you’re on the prowl for start-up capital. All you need is to land the right investor and you’ll be on your way.

It sounds good, right? The problem is that it isn’t easy. Let’s face it – to someone who has the money, you pose a big risk. After all, they’ve probably heard all the statistics on the large percentage of start-ups that fail. So how can you overcome the doubt and convince a potential investor to fund you the cash you need to get moving on the idea?

You’re going to have to avoid these 5 common mistakes…

1. Underestimate how much funding you need

One of the biggest reasons start-ups fail is not accurately calculating start-up funding. And it’s not necessarily that the entrepreneur didn’t get what they asked for in the beginning—it’s that they didn’t ask for enough.

It may sound silly, but a lot of people simply do not do the due diligence necessary to truly understand how much money they’ll need. This is often because the starry eyed new business owner expects things to go his way, so he’s unrealistic about needs. Rather than calculating costs if things don’t go well, he often will figure out how much money he’ll require assuming everything goes right. Big mistake. Assume that everything will go as bad as possible and plan accordingly. Then if you have more capital than necessary…well, no harm, no foul!

2. Don’t have a solid business plan

Let’s face it. Potential investors are going to be skeptical when you present them with your idea. So you need to do everything you can to try and show them that you’re not going to blow their money. Simply presenting a creative idea won’t accomplish this goal. You need to show them that you have a well-developed plan. That means a complete business plan. Consider getting help from a business plan writer here if you don’t have experience writing them.

3. Borrow from loved ones or friends without a legal agreement

Sometimes getting money from family and friends is easiest. Perhaps it’s because you can tug on the old heart strings, or maybe they just really want to believe in you. Either way, it can get really sticky, very quick and I don’t advise it. However, if you’re intent on doing so, make sure you get something in writing. Have a lawyer draw up a simple contract so you don’t end up on “The People’s Court.”

4. Overwhelming potential investors with too much information

When it comes time to do your pitch, it’s going to be hard to control your passion – and that’s okay. Your investors need to see how much you believe in your idea. However, make sure you don’t throw so much out there all at once that they have difficulty digesting it. Like a good meal, you need to break it up into chunks. Any good pitch will have materials prepared for each stage of the selling process.

For example, you need to give an executive summary before you try and get someone to read your entire business plan. And never underestimate the usefulness of a well-made PowerPoint presentation.

5. Being too careful

Scared someone is going to steal your idea? It’s a valid fear. However, when you’re trying to get someone to back you with cash, you need to throw that fear to the wind. Otherwise, you’re plan isn’t going to seem clear and your potential investors won’t have enough information to work with.

Getting start-up funding isn’t easy. But by avoiding the above mistakes, you could be on your way to turning your business idea into reality. What’s your plan for obtaining funding for your business idea? Talk about it in the comments.