Your startup should never have to pay $$$ to pitch to potential investors. Period.
Today, Alex Muse posted on his Texas Startup Blog about a recent encounter with an investor group asking $4,500 to pitch from ShopSavvy, one of my clients.
Alex has written about why a startup should never have to pay to pitch time and time again. Thus, the investor group would have been wise to check out his blog before asking for the cash.
Jason Calacanis authored an epic post on the topic of paying to pitch as well. It’s a great read.
Just remember that no matter how hard it is to source funds, your startup should never have to cough up its own funds.
Brad Sugars of Action International has published an article titled “6 Biggest Mistakes in Raising Startup Capital.” In the article, Brad lists the following as the 6 biggest mistakes you can make when raising capital for your startup:
1. Half-baked business plans
2. Focusing too much on the idea and too little on the management
3. Not asking for enough money
4. Having too many lenders or investors
5. Failing to get the proper legal agreements
6. Poor cash flow management
So far on The Startup Lawyer, I’ve talked to you about the benefits of keeping the number of your investors low (#4 above). And for the most part, this blog is dedicated to ensuring you conduct your startup company in the proper legal way (#5 above).
If you can’t self-fund your startup company and must take on investors, keep the number of your investors as low as possible. A low number of investors will reduce your startup company’s transaction costs and headaches associated with raising funds.
I’d rather my client raise $90k from one investor than $100k collectively from ten based upon the transaction costs my client would suffer both during the fundraising process and in the future. My client might have to cut back on Aerons, but it’s much easier to keep one person happy than ten.
If you have no choice but to take on a large number of investors, request that your investors form their own LLC. Have the LLC be your startup company’s investor and therefore you only have to deal directly with one investor.