Startup fundraising remains one of the most challenging aspects of building a successful company. According to recent data from CB Insights, only about 1% of startups successfully raise venture capital funding. Even among startups that secure initial seed funding, just 48% go on to raise a second round. These sobering statistics highlight the competitive reality of the fundraising landscape and the importance of approaching it with the right strategy.
Additional research from Fundz reveals that the average seed round in 2023 was $2.2 million, but the median was significantly lower at $1.1 million, indicating that a small number of outsized rounds skew the average upward. Meanwhile, founders spend an average of 4-6 months actively fundraising for each round, according to a First Round Capital survey, with most successful founders meeting with 30-40 investors before securing commitments.
In this high-stakes environment, understanding the fundamental dos and don’ts of fundraising can make the difference between success and failure. At Start-Up Drivers, we’ve helped numerous founders navigate this complex landscape, and we’ve seen firsthand the practices that lead to successful outcomes—and those that create unnecessary obstacles.
This guide outlines essential best practices and common pitfalls in startup fundraising, providing practical guidance to improve your chances of securing the capital needed to fuel your growth.
The Dos of Startup Fundraising
DO Prepare Thoroughly Before Approaching Investors
Before sending a single email to potential investors, invest time in comprehensive preparation. Develop a compelling pitch deck that clearly articulates your value proposition, market opportunity, business model, traction, team credentials, and funding requirements. Create detailed financial projections that demonstrate thoughtful planning and reasonable growth assumptions.
Beyond these standard materials, prepare answers for the tough questions investors will inevitably ask. What’s your customer acquisition strategy? How will you defend against competitors? What are your unit economics? Why is your team uniquely positioned to solve this problem? Anticipating these questions and developing clear, concise answers demonstrates your strategic thinking and reduces the risk of being caught off-guard.
Also prepare a comprehensive data room with supporting documentation that interested investors might request during due diligence. This typically includes incorporation documents, financial statements, customer contracts, team employment agreements, intellectual property documentation, and market research. Having these materials organized and ready accelerates the investment process once investors express serious interest.
DO Target the Right Investors for Your Specific Business
Not all investors are the same, and approaching the wrong ones wastes everyone’s time. Research potential investors thoroughly to identify those whose investment thesis, sector focus, typical check size, and stage preference align with your company.
Study their existing portfolio to identify similar companies or complementary investments. Avoid investors with direct competitors in their portfolio unless they have a known strategy of investing in multiple companies in the same space. Look for investors who have made recent investments in adjacent sectors or technologies relevant to your business.
Beyond these objective factors, evaluate subjective alignment on growth expectations, exit horizons, and company culture. Some investors prefer companies aiming for rapid growth and potential acquisition, while others support longer-term, sustainable growth strategies. Finding investors whose philosophy aligns with your vision prevents future conflicts over company direction.
DO Leverage Your Network for Warm Introductions
Cold outreach to investors has notoriously low success rates, with many venture capitalists explicitly stating they rarely engage with unsolicited pitches. A warm introduction from a trusted connection dramatically increases your chances of getting an initial meeting.
Map your extended network to identify potential paths to your target investors. This includes obvious connections like friends, colleagues, and advisors, but also extends to service providers (lawyers, accountants), other founders, and existing investors if you have them. LinkedIn and other professional networks can help identify mutual connections you might not have considered.
When requesting introductions, make it easy for your connection by providing a short, clear blurb about your company and why you’re interested in meeting the specific investor. This allows them to forward your request with minimal effort while adding their personal endorsement.
DO Build Relationships Before You Need Funding
The best time to start building investor relationships is long before you’re actively fundraising. Investors prefer backing founders they’ve gotten to know over time rather than making decisions based solely on pitch meetings during a compressed fundraising window.
Reach out to potential future investors early in your journey to share your vision and ask for specific advice rather than money. Update them periodically with significant milestones and progress against the challenges you discussed. This approach demonstrates your execution capabilities and creates familiarity that significantly improves your chances when you eventually seek funding.
Many successful founders report that their eventual lead investors were people they had relationships with for 6-12 months before formally pitching them. This pre-existing relationship creates trust and provides investors with a longitudinal view of your progress rather than a single snapshot.
DO Create Strategic Momentum in Your Fundraising Process
Fundraising works best as a focused, time-bound process rather than an ongoing activity that drags on indefinitely. Long fundraising periods signal problems to the market and drain founder energy away from running the business.
Structure your fundraising as a strategically sequenced campaign. Begin with investors who can provide valuable feedback but aren’t your highest-priority targets. Use these conversations to refine your pitch and materials before approaching your top choices. Once you generate initial interest, leverage it to create competitive dynamics that accelerate decisions from other investors.
Set clear timelines and communicate them transparently to potential investors. While artificial deadlines rarely work with sophisticated investors, clearly articulating your process and timeline creates helpful structure. For example: “We’re having initial conversations this month, deeper discussions with selected investors next month, and aim to close the round by [specific date].”
The Don’ts of Startup Fundraising
DON’T Misrepresent Your Traction or Metrics
Few things destroy investor trust faster than discovering that founders have exaggerated or misrepresented their metrics. Be scrupulously honest about your traction, customer status, pipeline, and financial performance. Sophisticated investors will verify your claims during due diligence, and discrepancies raise serious red flags.
Distinguish clearly between committed contracts, pilots, discussions, and aspirational targets when discussing your customer pipeline. Similarly, be transparent about which metrics represent actual performance versus projections. If certain metrics aren’t tracking as expected, acknowledge this directly and explain your understanding of the issues and your plans to address them.
Remember that demonstrating intellectual honesty and self-awareness often impresses investors more than perfect-looking numbers. Your ability to critically assess your business, identify challenges, and develop thoughtful solutions reflects the kind of leadership that builds investor confidence in your long-term success.
DON’T Approach Fundraising Without Clear Use of Funds
Investors need to understand specifically how their capital will advance your business to the next significant value-creation milestone. Vague explanations like “general growth” or “operational expenses” suggest a lack of strategic planning and raise questions about capital efficiency.
Develop a detailed use of funds plan that connects specific expenditures to measurable business outcomes. For example, rather than simply stating you’ll use funding for “marketing,” specify that “$250,000 will fund digital acquisition campaigns expected to deliver 5,000 new customers at a CAC of $50, based on our current conversion metrics.”
Your use of funds should clearly explain how the capital will help you reach specific milestones that increase company value before your next fundraising round. This demonstrates strategic thinking and helps investors understand how their investment translates into business progress and value creation.
DON’T Ignore Investor Feedback or Criticism
When investors decline to invest or raise concerns about your business, their feedback provides valuable intelligence. Rather than dismissing criticism or becoming defensive, use these inputs to refine your approach and strengthen your business.
Listen for patterns in feedback across multiple investor conversations. When several investors raise the same concern independently, it likely represents a genuine issue that warrants attention. This doesn’t mean every investor perspective is correct—sometimes they’re wrong about your specific market or business model—but patterns of feedback deserve serious consideration.
Circle back to investors who provided substantive feedback even if they declined to invest. Share how you’ve addressed their concerns or what you’ve learned since your conversation. This demonstrates your openness to feedback and execution capabilities, potentially converting them into supporters for future rounds even if they passed initially.
DON’T Let Fundraising Consume All Your Focus
While fundraising requires significant time and energy, allowing it to completely dominate your attention creates serious risks. Your business must continue moving forward during the fundraising process, as stalled progress will undermine investor confidence and potentially derail your round.
Designate specific time blocks for fundraising activities rather than letting them consume your entire schedule. Consider having different founders or executives take primary responsibility for different aspects of the business during fundraising to ensure continued progress across all fronts.
Remember that the best fundraising strategy is demonstrating business momentum. Hitting significant milestones during your fundraising process creates powerful validation and can accelerate investor interest. Structure your fundraising timeline to coincide with anticipated business achievements that strengthen your position.
DON’T Accept Investment Terms That Could Damage Your Business
Not all funding is good funding. Terms that seem acceptable in the short term can create significant problems for your business as you grow and raise additional capital. Understand the implications of the terms you’re accepting rather than focusing exclusively on valuation or check size.
Be particularly attentive to liquidation preferences, anti-dilution provisions, protective provisions, and board composition. Onerous terms in these areas can restrict your future options, make subsequent fundraising difficult, or give investors control disproportionate to their ownership. Even seemingly minor terms can have major implications for future financing rounds.
Work with experienced startup legal counsel to understand and negotiate term sheets. While legal fees may seem expensive for early-stage companies, the cost of accepting problematic terms far exceeds the expense of proper legal guidance. Consider the long-term implications of each significant term rather than optimizing for speed or minimal conflict in negotiations.
Conclusion
Startup fundraising combines art and science, requiring both relationship-building skills and strategic execution. By following these fundamental dos and don’ts, you can significantly improve your chances of success in this challenging but critical aspect of building your company.
Remember that fundraising is ultimately a means to an end—building a successful, valuable business. The best fundraising strategy is creating a company with genuine potential for significant growth and impact. When you combine a compelling business with strategic fundraising practices, you dramatically increase your odds of securing the capital needed to achieve your vision.
As you prepare for your fundraising journey, focus first on building something truly valuable, then on effectively communicating that value to the right investors. With the right approach, persistence, and execution, you can overcome the challenging odds reflected in the statistics and secure the funding needed to fuel your startup’s growth.
