Navigating a Founder’s Journey through the Capital Raising Process: Confidence, Persistence, Education, and the Dunning-Kruger Effect

The capital-raising journey for founders can be a rollercoaster of emotions and challenges. Founders often approach their first capital raise with unwavering confidence, convinced that investors will share their enthusiasm for their business. However, the reality is that raising capital is a different skill set from selling a product. This overconfidence can be attributed to the Dunning-Kruger effect, a cognitive bias where people with low ability at a task overestimate their ability.

The Dunning-Kruger effect comes into play when founders embark on their first capital raise. They may overestimate their knowledge and skills in this area, leading to unrealistic expectations and disappointment when faced with the harsh realities of raising funds. As founders gain experience and recognise their limitations, their confidence levels may decrease but their actual ability to navigate the capital raising process improves.

Over time, founders may experience repeated rejection, causing doubt and fear to creep in as their cash runway dwindles. At this point, they may seek advice from an advisor or immerse themselves in articles and podcasts to learn more about capital raising, venture capital, and high-net-worth (HNW) investment habits.

It’s important for founders to recognise that consistently connecting with investors is key to success. Although it’s tempting to focus solely on “good” investors, remember that one person’s “tire kicker” may be another’s shareholder.

Here are some recommendations for founders on how to navigate the capital-raising process: