Your investor pitch can be one of the most daunting things you have to endure as an entrepreneur. Investors are much better at negotiations than you are; after all, this is what they do, and they do it daily. You on the other hand, rarely do it. When you approach potential investors to invest in your new company, you should avoid certain expressions. They are traps that make you look weak or dig a hole so deep that you’ll have a difficult time finding the light to exit. There are volumes of advice on what entrepreneurs should be saying during investor pitches and meetings.
Knowing what not to say can be even more important.
Before you walk into that presentation or investor meeting you ought to know your lines, your slides, your data, the questions you’ll be asked by investors, and even the questions you should be asking to stand out and find a good fitting funding partner. Yet, all that can be blown if you make the following mistakes. Here are 7 examples of things you should never say to an investor:
1. We Have No Competitors:
If you really believe that, you should not quit your day job. Each and every business has some sort of competitor, even if it is only an indirect competitor of some sort. Even non-profit organisations have competition. If you haven’t found them yet, then you haven’t done enough research. You are going to look like a total novice and lazy entrepreneur. Who wants to fund one of those? Also never talk poorly about your competition. It is a turn-off. Always be respectful as the world is small and those competitors may get big enough to acquire your own business at a price that could be life-changing. Everybody has competition, even if they offer a substitute product. A sophisticated investor will be turned off immediately if you imply you have no competition. Every start-up launches because the founder has thought of something new. It is either:
- a new product or service, or
- a new market for an existing product or service, or
- a new way to deliver an existing product or service.
You are going to look like a total novice and lazy entrepreneur. Who wants to fund one of those?
2. You Need to Sign This NDA:
You might think you have the most unique idea in the world, and that letting it out is the biggest risk to your future. It’s not. First off, many investors I’ve spoken to are clear that they don’t think that there are really that many truly unique ideas. Somewhere, someone else is thinking of pretty much the same thing right now. Someone else did yesterday. Someone else will tomorrow. The big difference is in the execution and the founding team that can really pull it off. So, investors can’t sign an NDA because they can’t guarantee they won’t fund a similar idea from someone else. There is also too much legal risk they can’t control. It also shows that you don’t trust them. Typically, they would sign an NDA when you go into due diligence with them.
What should be more important is getting your idea out there and funding it before and better than your competition.
3. All I Need is Your Money; Not Your Opinions:
Investors usually consider their business acumen to be of considerable value to companies. When you make a statement like this – or imply it through your actions – you will alienate the investors sufficiently and they will not invest. If that’s true, then a business loan might be a better choice for your start-up.
4. This is Such a Sure Thing it Can’t Fail:
Most start-ups in South Africa do fail. In fact, 9 out of 10 go out of business within 3 years. All were ‘sure things’. Even those carefully vetted and well-funded by savvy investors fail. The majority of an investor’s bets aren’t going to work out. Only one is likely to be a huge winner. There are too many variables. Besides, being ready to be an entrepreneur means you have to be ready to fail. You have to be willing to test and try. You’ll always be tweaking. You might even have to start over. Paint the best- and worst-case scenario, as well as what you expect. Just don’t try to sell this as a guaranteed win. They know better.
Most start-ups in South Africa do fail. In fact, 9 out of 10 go out of business within 3 years. All were ‘sure things’.
5. My Time is Worth Just as Much as Your Money:
During an investor pitch, investors will often ask, “How much money have you raised to date?” They want to know how much cash has been invested in the company so far. All founders devote enormous hours in birthing their companies, but labour hours just don’t count. Don’t try and convince an investor that you have already invested months in sweat equity, i.e. your time. So what? Who cares? That’s not tangible. Yes, you can (and should) offer to work for no cash compensation (this could encourage investors to invest). But don’t go into a monologue explaining how your time is worth R800,000 per year, so you have thus far invested R800,000 into the company by working for a year without salary. Like banks, angels and venture capitalists want to fund ventures that are really on great footing already. Their capital will just amplify the good results. If you’re begging, it’s a sure sign you are already in trouble. You either aren’t getting the traction for your product, no one else is willing to fund you, or you’ve been mismanaging your money.
6. I Will Guarantee You an X% Return on Your Investment:
Seriously? Uhm, mayday, mayday, we have a huge problem! You cannot guarantee anything to your investors. When you state that you “guarantee” such a return, you are inviting a lawsuit from investors if such a return is not delivered. Do not do this! Most investors are purely investing on the basis of achieving a highly profitable exit. Normally sooner rather than later. That’s how they make their money. No investor can go in, without an exit strategy in place. So, not having an exit strategy or saying you’ll never sell or go public means you don’t have anything to offer them. If that’s really how you feel, equity fundraising probably isn’t for you. Also never talk about an exit strategy right away as investors may think you are in it for a quick win which shows lack of commitment. Only talk about a potential exit scenario if investors are actually the ones that ask you.
Seriously? Uhm, mayday, mayday, we have a huge problem! You cannot guarantee anything to your investors.
7. All I Have to Do is Build My Product and the Customers Will Come:
No, they won’t. If that was true, more entrepreneurs would be funded. Asking investors for money so that you can “build your superior product” is a no-no. Why should they invest their money if you have invested nothing yourself yet, or worse, not even started building a prototype product and at least done some market research to see who will buy this? By saying it, investors will know you are a naïve and not credible. Only three ways exist to create revenue:
(a) You can “buy” a customer. That is, you can spend resources (usually money) to raise awareness of your product, you can pull or push leads to you, and you can spend more resources to convert those leads into customers;
(b) You can convince existing customers to buy more, or buy more often, or not stop being your customer, and
(c) You can encourage existing customers to convert non-customers to become customers.
That’s it! Nowhere in this list is “Build my product and customers will come.” Creating and growing revenue takes work. Plain and simple.
8. The Market is So Huge; all We Need to Do is Capture 10% of 1% of It:
This might sound impressive to you, but it sounds ignorant to a seasoned investor. Investors want to invest in market leaders; they want you to have a large per cent of some market. Market leaders lead. Market laggards lag. Bragging about a “huge market” and the sufficiency of a tiny capture to “make millions” demonstrates that you don’t understand the dynamics of focusing.
It sounds like you are going to take the “shot gun” approach, one that usually results in failure because of overly broad messaging.
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