8 Things to Know Before Raising Startup Capital

By Brett Farmiloe

As a founder, what is one thing you wish you knew before raising startup capital? What should other budding entrepreneurs prepare for or know about this?

To help you better prepare to successfully raise startup capital, we asked business owners and lending experts this question to find out their best advice. From being prepared for a rigorous process of due diligence to building relationships with investors, there are several things new entrepreneurs should be aware of so they can put their best foot forward when raising capital.

What to know when raising startup capital

1. Be prepared for a rigorous process of due diligence

"One thing I wish I knew before raising startup capital is that I should have been better prepared for the due diligence process. I did not understand the extent to which potential investors would analyze my business, and I did not prepare enough to make a fantastic first impression.

"My business suffered as a result, and I did not raise as much capital as I might have because I did not present myself in the best light. Budding entrepreneurs should prepare for and know about the due diligence process, and how being prepared can position them for success."

—Matthew Ramirez, Paraphrase Tool

2. Get to know your potential investors personally

"When I first started my entrepreneurial life, I was enthusiastic about my business and ready to pass on that excitement to potential investors, but I wish I had known to focus on personalizing my efforts. Though investors are interested in solid opportunities, an investment often needs to be a fit with them on a human level that goes beyond just mere numbers.

"Getting to know investors on a personal basis, talking about their lives, and speaking about your experiences, will connect you to them and make it much more likely that they will have confidence in your enterprise. By making the effort to reach your investors on a personal level, you give them a sense that you are trustworthy and will maintain the ethics and values that make you and your venture a good bet."

—Matt Miller, Embroker

3. Approach fundraising as a full-time effort

"Fundraising is a full-time job. Either be all in or hire someone who can be. It's a lot of work and it's always a grind. You're constantly emailing, calling, and meeting with potential investors. And even when you're not actively doing those things, you're thinking about it, and it can easily become all-consuming.

"It's important to remember that you're not just raising money; you're also selling your vision for the future. Investors want to see that you have a clear plan for how you're going to use their money to grow your business. They want to know that you're committed to making your company a success. If you can't convince them of that, you're not going to get their investment.

"That's why it's so important to be prepared before you start fundraising. Know your numbers inside and out and be ready to articulate your vision in a way that inspires confidence. If you can do those things, you'll be well on your way to success."

—Lorien Strydom, Financer.com

4. Embrace your mistakes as learning opportunities

"As a lending expert, I would say that more startup founders should embrace their mistakes when approaching investors. Mistakes in building your business shouldn't be treated as skeletons in the closet, and rather should be embraced as learning opportunities that accelerated your growth.

"By being transparent with investors about the lessons you've learned, you show your adaptability and evolution as an entrepreneur. Plus, transparency establishes authenticity and trust. If you are cocky and "flawless," this is a big red flag to investors and lenders. We know that building a business is never a smooth process, so don't try to fool us!"

—Gates Little, altLINE Sobanco

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• 6 Communication Tips to Grow Stronger Business Partnerships
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• Selling Your Technology Company: The Due Diligence Process

5. Target investors who target businesses like yours

"Pitching investors can be a huge time suck. Too many startup founders who want to raise capital will chase people and organizations that have a very low probability of conversion. Instead, be efficient with your time by targeting investors who specialize in businesses like yours.

"Three attributes to consider are industry, stage of growth, and community. Narrow down your search by focusing on investors who have already backed companies in your industry. Next, determine the stage of your startup. To keep things simple, categorize yourself as early stage, growth stage (venture funded), or late stage. Then, drill down to investors whose portfolios include companies at the same stage as yours.

"Finally, consider investors in your community. For example, there are investors that specialize in women-owned businesses, Black-owned businesses, businesses in certain geographies, and various other cohorts."

—Dennis Consorte, Snackable Solutions

6. Be clear about the input you require from investors

"The biggest issue I had when raising startup capital was not communicating what I actually required from investors, aside from their monetary input. For example, as an entrepreneur, I was desperate for guidance and investment, and ideally, I should have sought investors who could provide that. As someone new to entrepreneurship, I never communicated that, and it actually meant that a few relationships with investors ended badly because I naively assumed that guidance would be part of receiving investment. Remember, communication with any kind of investor is key, and you need to outline what you require from [the relationship] as much as they do."

—James Taylor, Digital Tool Report

7. Don’t wait to raise capital before you start working on your idea

"One of the things I wish I had known as an entrepreneur is the importance of speed when it comes to a startup idea. Waiting to raise startup capital can take time, and when it comes to the digital world, speed is essential. When you have an idea, get it up and running with whatever capital you can find, and start small, raising capital along the way. If you don't, you risk someone else beating you to it. Also, find a way to start small by working remotely, digitally, with little or no inventory using drop-shipping, and even resorting to crowdfunding."

—Jenna Nye, On the Strip

8. Build relationships with investors before you need them

"Raising capital can be an exercise in patience, especially if you've never done it before. It's important to take notes on your interactions with various funds or investors. If you use these interactions to hone your pitch, you'll be ready to knock it out of the park when you meet with your first-choice fund.

"But even then, it's smart to be working on building relationships with your top picks before you start raising money. This way, when you're ready to pitch them, you already have an existing dynamic."

—Vimla Black Gupta, Ourself

RELATED: The Founder’s Guide to Startup Fundraising