When VCs See Red by Szymon Janiak

The post was originally published in Polish on Szymon’s LinkedIn profile. Szymon kindly agreed to republish what we think is of great value to our readers.

Investing in startups, I rejected over 6,000 companies. Many of them got refused not because of the business or the team itself, but because of simple mistakes made when raising capital.

This is somewhat surprising, because in the era of so many available materials or advisors, the same things come up all the time. It’s hard to determine whether it’s a matter of the founders not wanting to spend time on research or they think they have different rules. The truth is that funds operate in a rather schematic way and a really large part of the potential risks can be mitigated before the first meeting with the investor. A few examples:

• The team works in different places with full-time jobs and wants to stay there. It is a matter of lack of faith in the company and an attempt to transfer the risk to the investor. Either we go all the way or we don’t.
• A pitch deck is amateurish, sloppy and poorly prepared. If someone cannot prepare properly for a meeting with an investor who is to have a key impact on the company’s development, how can the investor believe that the company will treat customers seriously?
• A business model can be verified for 50k, and they are looking for millions. If for little money you can check whether something works, why look for many times more? It is better to conduct a test for small capital to see if the project makes sense and only then throw yourself at great things.
• The valuation is so large (or small) that it will make it impossible to raise further capital. This demonstrates a lack of awareness of the realities. So what if they even convince the first investor, if they never attract more?
• The market is so small that the business has no chance of returning to investors. The product has a wider application, but the team focuses only on a fragment of the market, which makes no sense for VCs, even if they become the leader. Just think bigger.

There are dozens of examples like this, and the truth is that many of these problems can be easily eliminated by proper preparation for talks with investors. Learning from your mistakes is in a sense a waste of time, since they can be easily avoided using the available knowledge.

Before you move on to raising capital, you need to understand the perspective and motivation of the funds, their expectations and market realities. In theory, it seems simple, but practice shows differently. One thing is certain – you have to prepare, one way or another.