Part 1: VC-Facing Mistakes
(Part 1 of 3) 50+ Common mistakes first-time founders make -- and what to do to instead to extend your runway, improve your product and retain the team
Originally published in March 2023
Part 1: VC-Facing Mistakes
Whether you’re considering fundraising -- or are in the middle of it, if you make these mistakes, you may miss out on fundraising opportunities.
Business Operations
Can't be LLC or sole proprietor if you're planning to issue equity at some point.
No worries if you didn't know that. I was flattered when 3 first-time founders wanted me to be their advisor, but I couldn't start until they changed how they structured and incorporated their business.
Legal
Virtually every start-up I’ve worked with has made at least one of these mistakes (!); it prompted me to rethink how I do strategy calls (and how a whole blog post about this). After incorrect company structure, this may be the next biggest cause of losing out on funding – and, as a result, seems to be my soapbox when I’m collaborating with start-ups.
You (typically) get what you pay for… I encourage you to find a lawyer that has experience with equity contracts to help you draft your equity incentive plan, VC term sheets and all other contracts.
Ideally, you’d find one before you start to fundraise.
Please note: A pro bono lawyer is better than no lawyer, but remember that as a non-paying client – all of their paying clients are higher priorities. A pro bono lawyer of a start-up I collaborated with took about 1 quarter to reply to questions (!) but they didn’t cost the start-up anything.
Make sure you understand all the terms in all of the contracts you’re signing, including what risk you’re managing with the contract and where there’s remaining exposure. I can’t tell you how many start-ups blamed their lawyers when I asked follow-up questions about very interesting clauses in their contacts, such as those I call out in this blog post.
Try to make your Letters of Intent (LOIs) as easy to sign as possible, consider creating a template for prospective clients to fill-in – and consider asking your founder network for examples of signed LOIs. In addition, your LOI should specifically spelling out that it’s:
not a binding agreement, but is for endorsement purposes only, and
will be used in confidential pitch decks only, and not announced publicly on the website, in Marketing materials.
Both of these clauses will help the LOI move more quickly through the approval process.
Fundraising
Please see this blog post on to help you better understand How long will Fundraising take? (or) 8 Steps you Need to Know to Fundraise Successfully -- and try out recommendations to avoid the most common pitfalls.
Pitch Decks
For the most common mistakes founders make when it comes to pitch decks, please my advice in these two blog posts: