Advice on Avoiding Raising Capital Pitfalls

​Today the Angel Capital Association (ACA), the largest angel professional development organization in the world, provided an insider perspective that helps you make smart investment decisions and coach startups. They introduced angel investors Bart Dillashaw and Roberta Garven, who shared experiences as investors helping startups through common pitfalls. Most importantly, they shared top 10 list of common pitfalls entrepreneurs and startups need to avoid when raising capital and you need to be aware of as investor. Here is executive recap to help with your understanding and aims:

• Make sure company is setup correctly with the right kind of entity and structure. Most companies invested in through angel and VC track are Delaware C-Corp. Ensure proper company documents are filed and solid company structure in place.
• Ensure stability throughout the founders and executive team. Does the team get along well and enjoy working together? A great team and realistic ownership split with equity among them shared fairly is important. For example, the founders and executive team to share similar class of stock and vesting schedule so all is fair, equitable, and stable.
• Have a clear cap table so all investors and equity split can be seen transparently. Have documents aligned and clean to support documenting all investments made. Keep to accredited investors and all investments properly filed. Keep cap table simple. Common stock. No fancy structures and tiers.
• As a startup raising capital have a diligence folder setup that clearly tracks all your investments. Have all docs in and signed. Make it easy for investors to see your progress and status. Avoid questions and suspicion due to required documents missing.
• Always be prepared to pitch and pitch well. Get advice from angel investors and VCs who have seen hundreds of pitches to get best practices and your most compelling story told well, quickly.
• Understand the fund raising timing. It takes longer then you think. The first round vs. second round have different timing. Smaller amount of money can be raised a little sooner, but this money needs to be directly applied to actions that result in growing the valuation of company so you can be ready for next round. The second round can take 6 months or longer to raise so ensure first round of funding gives you enough runway to avoid an emergency bridge round. Have clear metrics to achieve that are shared with investors so you're all on the same plan to growing the company and next step for investment aims.
• Ensure founders believe in idea and are all in with sweat equity versus big salary so investors can clearly see the founding team is all in to grow the business and go toward successful exit vs. lifestyle business.
• As founders of your company be ready to have valuation set fairly based on your actual stage and not based on what you think you need per your aspirations. Also, be ready to negotiate. Early investors in startups will want to negotiate terms so be flexible.
• Understand raising money is like dating in that it takes time and a lot of relationship building. Be open and learn from everyone you can. Show that you are sincere, open, and can be coach-able. Angels are looking for long term relationship so like to see progress and updates along the journey with good character traits in the people leading the company and the communications.
• Lastly, be open, honest, and never hide anything. Show everything even if some things are bad. Share the good news and the not so good news. For the bad news share with clear plan to overcome it. This will build trust.
• Here is recap on top pitfalls to avoid in image below. ​A special thanks to the Angel Capital Association (ACA) and angel investors Bart Dillashaw and Roberta Garven!