Entrepreneurship Comes with Risks, Fundraising Requires Caution
You’ve sent out hundreds of pitch decks, only to hear nothing back. Finally, a junior manager from an obscure fund agrees to meet with you tomorrow.
You’re so excited you can’t sleep all night, planning how to present your pitch.
The next morning, you ask your wife to help you tie your tie, slick back your hair, and stride confidently into Starbucks. Nervous and parched, you deliver a half-hour presentation to the investor. They ask a few questions about your operations, offer some industry suggestions, and leave you with a casual “I’ll think about it and keep in touch” as they walk out of Starbucks.
A day goes by. Then two. A week passes. That impressive investor never contacts you again.
And that’s just one of the many pitfalls on the road to fundraising. Wang Bao, a colleague at Anpingtai Fund who once worked as an investment manager before becoming an entrepreneur, shares other tricks he has witnessed in the investment world. Before diving into the details, here’s what you need to understand: venture capital funds are also raised. The investors are called Limited Partners (LPs), who only provide funding in exchange for financial returns. General Partners (GPs) handle project selection and external investments. GPs charge management fees from LPs. Investment firms are made up of two types of people: partners and everyone else. The “everyone else” category includes Vice Presidents (VPs), Associate Directors, Investment Managers, and more—collectively referred to here as investment managers. Their job is to scout projects for GPs in exchange for commissions. The people you meet as an entrepreneur are typically these managers, and for them, it’s just a job. You might end up as a mere name on their weekly report—or not even that if your project isn’t in line with their firm’s focus.
Common Tricks in the Fundraising World
Trick 1: More Investors Than Entrepreneurs
During the startup boom, investment firms outnumber entrepreneurs. A few people pooling together RMB 3–5 million can claim to run the most “professional” investment fund. Wang Bao recalls meeting a “famous investor” at networking events who proudly said, “Our firm is made up of former top-tier investment professionals. We have a RMB 2 million fund and plan to invest in a batch of projects next year, with RMB 50,000 per project.” If you come across such firms, stay away. An institution that can only invest RMB 50,000 per project is either playing around or playing you.
Trick 2: Outright Demand for Equity
Some investment managers will outright ask for equity stakes. If they’re demanding shares upfront, don’t expect any meaningful returns down the road. Someone who demands equity today could betray you tomorrow.
Trick 3: Endless Delays
Today they’ll ask you to revise your pitch deck. Tomorrow they’ll request operational data. One moment, they’ll say your deck’s color scheme is off; the next, they’ll dislike the font. When you ask about progress, they’ll say the process is ongoing. Ask again, and it’s still ongoing. Keep asking, and the answer remains the same. Such firms are not worth your time—there are plenty of other opportunities. Don’t waste time pining for one unresponsive investor.
Trick 4: Exploitation
Investment is a fair exchange—equity for funding. There should be no hidden conditions beyond the investment terms. If an investor tries to exploit you, whether by leveraging power or coercion, walk away immediately. Such individuals aren’t investors; they’re predators.
Trick 5: Stealing Your Ideas
Protecting your intellectual property is a fundamental business principle. Be cautious and safeguard your business ideas.
Final Thoughts
iNote reminds all entrepreneurs: entrepreneurship is inherently risky, and fundraising requires caution. Every entrepreneur is a revolutionary in their own right. Revolution involves sacrifice, and failure isn’t the end of the world. What’s truly devastating is losing your integrity. Once you compromise your values, it’s a slippery slope you can never climb back from.
