Bryan McArdle | Source | Vice President, Entrepreneurial Development at Economic Development Authority...

What are the common mistakes startup founders make when seeking venture capital?

"Rule #1 is to never run out of cash. Startups don’t die of old age or because the product failed, they die because they ran out of oxygen. With enough runway they can experiment and find a way to survive. Those that do often find success outside of their original business model. Founders often wait until they are desperate to make payroll to start their fundraise and they assume they can get a deal closed in 2 months. It just won’t happen. Give yourself at least 6 months or more and plan for that funding round to last the next 12-18 months. In the back of their minds, founders should know their ROOM date when they will “Run Out of Money”. If it’s 6 months out they had better start planning to fundraise.

The other mistake is not being upfront and honest. Most investors are former founders and know how difficult and challenging it is to build a company at the early stages. They chose to be investors because a part of them still likes that excitement and danger. They remember the scars they received from past ventures and are often sympathetic to founders who are currently on the battlefield. Having gone through it they can smell friction between co-founders, they’ll notice if you are skipping over the unit economics, or not addressing the competition. If you are painting too rosy a picture or are purposely avoiding some critical issue they will know, and one little white lie or embellishment will tank your chances. I lean towards being open, honest and a bit vulnerable."

What makes this approach so useful?

"I still point founders to the “Invest in Lines, Not Dots” blog post from Upfront Capital’s Mark Suster. It’s more than a decade old but still relevant. Investors want to see traction and progress and can’t do that after one coffee meeting or a quick pitch. They see hundreds of deals a year, and rarely invest in someone who walks in off the street. They often curate and keep track of the best investments until the time is right. You should do the same with your list of targeted funds. This is a courting process, not a shotgun wedding."

What's the best way for a startup to attract venture capital investors?

"Start early, I mean early, and develop relationships with potential investors a year or more in advance. Network and attend events, follow them on twitter, get to know their portfolio companies, understand what they invest in and at what stage. The most common responses from investors are that you are either too early, or too late, or that they don’t invest in that vertical. Founders should do their homework so that they don’t waste anyone’s time, especially their own as time is a critical resource. Earmark the ones you will approach at later stages when the timing is right.

I encourage every startup to send out a quarterly or monthly newsletter to any potential investors they’ve met with on how things are progressing, milestones and KPI’s, changes to the team, and recent successes. Those updates will get passed around from investor to investor and may land in the lap of the goldilocks funding source. Some investors may proactively reach out to a startup based new information or a recent success."