Q: What are some no-no’s when it comes to funding a startup?
Here’s my list:
- Never assume your existing investors will write you another check. They may, but it’s hard to predict if they will. Just assume any more money has to come from new investors. You’ll plan much better that way. This is my #1 no-no by far.
- Make sure the money lasts at least 18 months. Your investors are assuming that’s how long the runway is, maybe even 24 months.
- Don’t ghost your investors. Well, you can, but they won’t really be part of the team if you do. Update them every month like clockwork. Even when things are tough. In fact, especially when things are tough. Investors in startups expect tough times along with the good times.
- Don’t hide stuff. It’s hard for investors really ever to do enough diligence, so it’s actually easy to hide stuff. But trust will be broken forever. This comes back to bite you.
- Make sure your salary, if any, is proportionate and fair. You don’t want to underpay yourself — once there is enough revenue coming in. But make sure your comp, if any, doesn’t drag the company down.
- Don’t pay yourself back for stuff before the investment that isn’t approved and disclosed. If you are going to “pay yourself back” for anything pre-funding, make sure the investors know about it and are OK with it. They may be, especially if it’s small compared to the overall size of investment. But make sure they are OK with it.
A bit more I wrote on TechCrunch about this here: 10 Things That Can Derail A Round Of Funding – TechCrunch
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