5 Major Mistakes Startup Owners Make After Getting Funded

Most aspiring entrepreneurs dream of finding an investor for their startup. However, if a startup successfully attracts an investor, it’s too early to rejoice.

According to The Wall Street Journal, 3 out of 4 startups fail. Terence Yang, investor, and founder of Yang Venture identified the following reasons for the failure of startups that raised investments:

• Expansion of the company before a real market fit is found
• Scaling too early
• Losing communication with investors
• Wasting time on partnerships
• Wasting time chasing deals with big companies, governments, or nonprofits
• Wasting time on the press and PR
• Renting an office before you really need it

In this article, we focus on five major mistakes from the above-mentioned list.

Reckless spending

Constantly upgrading a business seems to be the biggest proven factor of a business's growth and success. A shiny new office says that your company has money and opportunities for employees and new investors.

But in reality, upgrading a small business office right after being funded usually is a big mistake.

Beepi.com was a company getting $60 million in the Series B funding round. However, the company shut down after only four years. Among the critical mistakes the company made was shelling out $7 million on salaries and luxuriant purchases. Once, they spent $10,000 on a sofa for their executive office.

Due to the COVID-19 pandemic, businesses have learned that they do not need five-floor offices to make consumers know about their products. Remote working conditions allow companies to save money while advertising their campaigns and stay connected with employees and customers from any place.

Bad relationship with the investors

After getting funded, it is still critical to stay connected with the investors and keep them updated on the business development. Having meetings and even asking investors for advice is a must.

Investors expect you to have them as a

part of your business growth. Moreover, many of them may have already experienced similar ups and downs as you have during your startup journey so they can advise you on important points to consider.

Communication with investors is necessary to display an image of a business that is fair and transparent.

Call9, a startup with a total funding amount of $34 million, failed in just a couple of years because of simply ruining relationships with investors. According to insider information from the company’s team, they had bad communication with one of the main investors, which became one of the key reasons for Call9 failure.

Lack of a proper business plan

Aria Insights, a drone company, is a good example of bad planning. They developed a really promising way to collect data but did not come up ahead on how this data can be used. This led to falling deeper and deeper into chaos because of a lack of understanding of where their product is going.

Having no roadmap will always lead to getting lost. After being funded, a startup has to budget investment and for doing this reasonably - deep planning is a must.

You have to make the spending more accountable, understanding what is needed for marketing, sales, customer research, product development, and other departments.

Having a proper business plan helps also to unite your team, showing them a bigger picture of your business, and their perspectives within the company.

Lack of proper accounting

Keeping track of the flow of funds is essential for any organization. But for a startup accounting for all the payments and expenses should be one of the primary focuses.

Why?

1. First of all, it helps to analyze critical business points to form business decisions. Proper bookkeeping helps to understand what drives your business, how much each department costs, how much it makes, how sound your business is financially, and more. The numbers give you a clear understanding of your business's financial health.
2. A sound accounting helps to get a vision for the future of your business and a plan or operating framework. Setting goals for the next year, quarter, month, or week, requires a consistent accounting strategy, which, in turn, requires keeping all the numbers in order and filling in the smallest expenses and incomes.

There are various bookkeeping software and tools that can help you automate and simplify accounting processes.

Trying to overstep real abilities

After getting funded, many startups want to show quick results to investors to prove that they meet their expectations.

Trying to scale too fast may lead to investing in short-term growth methods i.e. PR campaigns, advertising, discounts, and so on. These are good methods to get new customers fast but for startups, it often results in insignificant returns. The thing is that the customers you acquire through these campaigns may not turn into real loyal customers.

The same thing happened to Layer Inc, getting $44 million in funding. The company failed because of the pressure from the investors' side. They wanted a startup to show major results. The company started to overstep its real abilities and compete with giant enterprises, which resulted in failure.

During the initial stages, it’s better to spend funds on developing the product itself and on long-term marketing campaigns. This will help you gain customer loyalty while avoiding risks.

Being Flexible Is a Must

Many of the most common mistakes startups make come down to their expectations being shattered by harsh reality. Therefore, before launching your own business, you should objectively assess the complexity of the project and your strengths. After all, even the most brilliant idea will not be enough.

In the era of the new economy, an entrepreneur must quickly adapt and understand the various aspects of a business: management, marketing, finance, and team selection.

However, having a consistent plan and business vision, professional investors by your side as well as up-to-date tools to streamline your workflows make up the best starter pack for every modern-day startup.