So you have this great idea, it’s going to change the fucking world, and you also think you’re in the right place to raise a Seed round. First – right on, that’s definitely the right way to think as a founder, if you aren’t insanely passionate about what you’re doing you definitely won’t be able to convince an investor to be.
At the same time a great idea, even some solid initial traction can all go to waste if you’re doing something that most investors see as a red flag.
Now before I go any further let me say this. You can always point out cases where a hugely successful company had one or more of these red flags. Outliers are always possible, but they aren’t the norm, and the reality is you really want to reduce any friction you might have when it comes to raising money, it’s hard enough, don’t make it harder.
Also, these are not deal-breakers I came up with myself but instead red flags I’ve heard mentioned multiple times by some of the top Seed-stage VCs in Silicon Valley. For some of them these red flags are absolute immediate deal-breakers, others are still open to considering a deal but one of these red flags will definitely give them pause.
There, I’ve given my disclaimer, now let’s get to the good stuff. Here are three red flags that could stop you from raising money from VCs.
- Solo founder – running a startup is incredibly hard, going it alone is even harder. While solo founders can and do get funded, it’s not the norm and for some investors this is a complete deal-breaker.
- No technical founders – if you and your co-founders are all businesspeople this could be a problem for you, in fact, it probably already is. I’ve heard non-technical founders say things like “we’ll just have a developer work for us on night’s and weekends for a few thousand dollars a month.” Sounds good right? It’s often too good to be true, and investors know that. The reality is that you end up under-paying a dev who does crappy work and then leaves you with a bunch of poorly-written code after a few months.
- Messy cap tables – when you’re raising your Seed round, your cap table should be pretty clean. If you have weird things like advisors with huge equity grants or old team-members still hanging onto equity even though they aren’t working there any more, yeah – red flags. A VC wants to see you raise an A round, B round, etc. if your cap table is already messy pre-Seed it’s only going to get messier.
I could have made a top five or even top ten list but these three have come up so many times when I ask VCs what red flags they care about that I thought this was a good place to start. Feel free to share other red flags you know of in the comment section below.