Fundraising red flags

All it takes is one red flag for an investor to pass on a deal. Here’s the list of fundraising red flags I wish someone had shared with me when I was a founder:

🚩 Pricing the round too high or too low

There are so many factors that go into the price of a fundraising round: The stage, the amount of money being raised, the state of the market, the company’s revenue, the price of similar rounds closed recently, the public market comps, etc. No matter what the price, mispricing the round tells investors one thing: You didn’t do your research.

✅ DO: Focus on your company’s industry, stage, and revenue to find a ballpark range for a fair valuation. For this challenge, industry comps will be the most helpful tool.
❌ DON’T: Neglect to price your own round in hopes that you won’t look uninformed. No decision is still a decision.

🚩 Obsessing over confidentiality during Due Diligence

Many founders don’t realize that Due Diligence is simply the process of looking for all the reasons to say “No”. While some founders might withhold a few details during the initial pitch, the Due Diligence process requires you to reveal absolutely everything.

✅ DO: Assume that whatever materials you send will be passed around and write those documents accordingly. It’s going to happen whether you like it or not.
❌ DON’T: Act secretive during the DD process. Investors will assume that you’re hiding something negative that might impact the deal.

🚩 Asking for an NDA before pitching

This happens more often than you might think. Unless you’re breaking the law by sharing your company’s information without an NDA, don’t ask for one. 90% of investors will walk away from the deal right there.

✅ DO: Identify which information (if any) is confidential or sensitive in your pitch.
❌ DON’T: Cold email an investor to pitch them with the expectation that they sign an NDA. And God help you if you’re pre-product.

🚩 Name-dropping too much

This tells investors that you’re relying too heavily on the reputation of others to elevate the perception of your own company.

✅ DO: Share the names of people who referred you, investors, people on your board, advisors, or (if applicable) customers.
❌ DON’T: Name drop the B-List celebrity that Quote Tweeted you once 4 months ago.

🚩 Creating urgency where none exists

If no one feels a sense of urgency, the deal won’t get done. But the act of encouraging urgency is an art. If you push investors to move at an unreasonable pace, it will seem like you’re trying to force the deal through. Plus it’s just bad form.

✅ DO: Share the target close date for the round and communicate consistently with investors to get to a decision quickly.
❌ DON’T: Attempt to push them to a decision quickly and early.