The Art of Startup Fundraising

17Red Flags

For those ready to power forward, recognizing red flags is as important as knowing what to do when it comes to raising capital quickly and effectively.

Key Red Flags for Startups

In our coverage of what to look for in investors we touched on some of these red flags:

• Time wasters
• Lack of experience
• Asking for far too much
• Offering too little
• Too pushy

As you now know, look for investors that are going to be an asset beyond the money. Some may claim that you don't have to like your investors, just their finances. But a lack of mutual interest will likely lead to problems.

Red Flags for Investors

In order to ensure a successful and streamlined fundraising, experienced entrepreneurs also need to be alert to what investors may perceive as red flags.

Too Many Members of the Founding Team

Giving equity is a great way to motivate and enroll the help of more individuals when your startup is lean on cash. This can be applied to cofounders, key team members, friends and family investors in the seed stage, and even advisors and professionals such as lawyers. However, too much equity in the hands of too many (especially inexperienced) early shareholders can be problematic. Even too many team members at the beginning can be problematic from an investor's point of view. So keep your fundraising goals in mind when hiring and considering bringing on cofounders.

Overhead Is Too High

If overhead is already too high, or the profit margins are going to be too small, investors should ...