Three Crucial Mistakes VCs Make And How Entrepreneurs Can Leverage Them To Improve Fundraising

In the world of venture capital, where failure rates are high, it is surprising that venture capitalists rarely discuss their mistakes. Instead, they often focus on self-congratulatory speeches. However, it is crucial to acknowledge the non-economic mistakes made by VCs due to their human nature. These mistakes have cost investors significant amounts of money and can provide valuable insights for entrepreneurs seeking funding. In this article, we will explore three critical mistakes made by VCs and how entrepreneurs can leverage this understanding to improve their fundraising efforts.

Mistake #1: Personal Connection Matters

One of the most important mistakes VCs make is favoring founders whom they feel a personal connection with, even when their numbers and product may be inferior to that of other founders. When a moment of human connection happens, it becomes challenging to dismiss it. Investors tend to trust individuals they have a personal bond with, leading them to invest in their ventures.

This personal connection can be established through shared interests, common backgrounds, or even a similar sense of humor. This bond creates a sense of trust and ease, making investors more inclined to support the founder. On the contrary, if an investor perceives the founder as a stranger, their survival instinct kicks in, causing them to be more cautious.

Entrepreneurs should understand the importance of personal connections in the VC world. Researching and learning about potential investors as human beings can help entrepreneurs identify those with whom they may establish a strong rapport. By understanding the different personalities and preferences of various VC partners within a fund, entrepreneurs can approach the right individuals who are more likely to resonate with their vision and goals.

Mistake #2: Diverse Personalities within VC Funds

Most VC funds have multiple partners with diverse personalities intentionally. This diversity allows funds to connect with a broader range of entrepreneurs and mitigate the potential biases that come with personal connections. Entrepreneurs should take advantage of this diversity by studying the different investors’ human side within a fund before pitching their idea.

For example, within our fund, we have partners with varying preferences. Joel prefers active and passionate founders, Saagar resonates with scientists and tech experts, Ruslan admires strategic founders with attention to detail, and I am drawn to entrepreneurial individuals with a strong pirate spirit. By understanding these individual preferences, entrepreneurs can tailor their pitch and approach to the right partner, increasing their chances of success.

Mistake #3: Overlooking the Human Element

VCs tend to focus heavily on the economic and technical aspects of a venture, often overlooking the human element. Understanding this blind spot can give entrepreneurs an edge in their fundraising efforts. By highlighting their personal stories, passion, and commitment, entrepreneurs can capture the attention and trust of potential investors.

Investors want to invest in founders who can inspire and lead, not just in profitable business ideas. Entrepreneurs should emphasize their unique qualities and showcase how their personalities contribute to the success of their ventures. Sharing personal anecdotes and displaying genuine enthusiasm can create a lasting impression on investors, setting entrepreneurs apart from the competition.