If you’re wondering why your pitch always gets thrown out or why you can’t seem to land funds from investors, it may be because you’re saying one of these five things. Here’s what you should never say while pitching investors.
Founding an early-stage enterprise can be a lot of work. In between getting the business up and running and keeping the lights on, you probably already have your hands full. But then, we know that keeping the lights on is not always easy and chances are you’ll need help with that at some point.
That’s just a disguised way of saying that most early-stage startups need all the funds they can get, and more often than not, they would have to take their chances with what tidings lay in wait on the outside.
These days, there’s plenty of talk bordering on why startups should resist the lure of investor money — some even liken it to dining with the devil — but that takes away nothing from the fact that there’s only so much “personal savings” and “borrowed money” one founder can pump into a business and the so-called “investor money” has been the driving force of many companies that have grown into successful enterprises in their own right.
With that in mind, it follows that founders will always be on the lookout for who’s got the bread and investors will always be willing to be seduced by who deserves it most. The latter can be tricky — that is, determining who deserves what. Sitting through kickass pitch after kickass pitch must bring that kid-in-the-candy-store feeling every once in a while.
And it’s only natural that the investors try to make things easy for themselves by fussing over whose pitch has more red flags even more than they care about whose pitch has more goldcrests.
That is to say; investors have a tendency to look out for why they should say “no” even more than care about why they should give a “yes”, and some of them say no very quickly too. In fact, venture capitalists are most likely to dish out nine “nos” for every one “yes” they give.
But how do they determine who deserves a yes? Simple, they just pick out whose pitch has the fewest red flags. Compared to whose ideas serves up the most attractive benefits, it’s a much more easy-to-use metric, especially as most startups would ace it when it comes to what they’re serving — better to judge them by where they’re failing.
And that’s where “red herring” as in investor parlance comes in. That is, those things that put off investors. Some of them even go as far as having some form of the popular “three strike rule” with which they credit or discredit founders. It can be unfair sometimes but come to think of it, how else can they listen to several pitches each week and make up their minds?
In startup funding parlance, red herring is investor-speak for founders’ statements that generally gets investors less enchanted about the idea. I don’t know who else is seated at this table but I’d like to think I speak for not only myself when I say every time I wanted to buy something and eventually did, I was looking for why I shouldn’t buy it the entire time. That pretty much sums up the situation here.
So, if you’re a startup founder who hasn’t been able to get those investors to reach for their cheque books, or hasn’t been able to land those big cheques, you might want to be mindful of the following five things you should absolutely never say when pitching an investor.
“We have no competition.”
This could mean one of two things; either you don’t know how to Google or your idea stinks so bad, no else wants to touch it. To investors, saying you have no competition is just BS. Sure, you can BS your way into people’s pockets but at that point, you’ll no longer be pitching. Conning will be more like it.
It might be true that you’re trying to address an unmet market need in a much better way but you’ll always be in competition with the way things have always been done and the many other choices that your potential customers can make; one of which is the “remain indifferent” option — which does kill more startups than the actual competition.
“Key team members will join post-funding.”
It speaks volumes to funders if a top executive chooses to leave their highly-paid post to work for equity as a co-founder. So, the opposite — a lack of early commitment by co-founders — can dent investor confidence. While it’s understandable that people have bills to pay and kids to feed, it doesn’t help your case if it looks like there isn’t even much of a team to start with. Nobody wants to put there money in a sinking ship, not to mention “no-ship” at all.
“We have no skin in the game.”
In many ways, this comes across as; “I want you to invest in my company, but I haven’t invested in it myself.” Entrepreneurship is no chicken game and investors would be comfortable doing business with someone who isn’t going to vanish into thin air once the going gets tough, and it is quite certain that it will.
If you have used up all savings, sold valuable property, taken up some loans, or even mortgaged your house just to get the business off the ground, it reeks of commitment. It shows that you have a lot to lose if things go south and you are “extra-motivated” to see that it doesn’t.
How much you are vested in what you’re trying to sell is an indication of how far you’re willing to go to succeed. And that makes you more deserving of the funds. It’s a non-starter to demand for a buck if you haven’t put in a dime of your own.
“Our financials are conservative.”
Ever heard of pro formas? In simple terms, they are future-oriented financial statements made based on a series of assumptions. By definition, they aren’t conservative, and in most cases are maybe a tad too optimistic.
When it comes to future projections, investors want to deal with reasonable founders. The projections just have to be reasonable, not necessarily right. Too outlandish would reek of desperation and too modest just speaks of little ambition.
Investors look at pro forma financial statements as a test of a business acumen which goes to show just how well the founder knows the business. And as such, it is better to even go overboard with your projections than to be conservative with it. Even though you’re being reasonable, it would just mean that you’re idea isn’t profitable enough and not worth the time.
“We outsource our code,” “We can’t build our product in-house,” or “We paid others to create our MVP.”
Today’s startup climate has launching early and iterating often as the norm. In fact, the much-talked-about Lean Startup methods places a premium on rapid iteration based on customer feedback as one of the keys to success.
If you have to run to consultants or some other third party every time you need to tweak something on your UI, it’ll put a damper on your ability to effect those changes quickly and pivot swiftly towards the route that will ultimately lead to the gold mine. And investors don’t want that, it’s a no-no. So, don’t get sucked into a situation where you have to say you’re not making what you’re selling, especially when it has something to do with technology.
As an early-stage startup founder, you won’t always get the chance to get out there and have the right audience listen to your pitch and that’s why it’s important that you uproot these red flags from what you intend to serve up to whoever you’re looking to impress enough to want to rip off those cheque books.
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