Many startups seeking investment capital make common mistakes when pitching their business to potential investors. These easily avoidable errors can be statements made in their elevator pitch, in an email introduction, or even in the formal pitch deck they use to present.
Here are 10 statements from startup entrepreneurs that are likely to turn off potential investors:
1. “We have no competition.”
Of course your startup has competition, and to think otherwise shows an investor that you are naive. A simple Google search will often surface any number of potential competitors. Your job is to identify your top potential competitors and explain why your company is better.
2. “We want you to sign an NDA before we give you information about our business.”
Investors are busy and get inundated with business pitches. The great majority of investors will not sign a non-disclosure agreement, and you are just putting up a roadblock in even asking for one. If you have extremely confidential information, don’t include it in your pitch deck.
3. “We have a great idea and we want funding to develop it.”
To get investors interested, you can’t just have a good idea, as most investors believe that good ideas are a dime a dozen. You need to show progress in the business and any traction you might have already gotten. Traction can be customer sales, app downloads, traffic to your website, press coverage, strategic partnerships, or something else concrete. The more traction you have, the more likely you will be funded at an attractive valuation.
4.“We just started but we will have $500 million in sales and $200 million in profits within three years.”
No, you won’t. By saying something like this you are showing that your projections are simply not credible. Investors want to see a big potential upside in the business but they also want to see realistic numbers and reasonable underlying key assumptions. Avoid assumptions in your projections that will be difficult to justify, such as how you will get to a 400% growth in revenue with only a 20% growth in operating and market costs.
5. “We started the business as an LLC and we want you to invest in that.”
Most professional investors do not invest in LLCs—they typically invest in preferred stock in a C corporation.
Related articles from AllBusiness.com:
- 22 Mistakes Entrepreneurs Make When Pitching to Investors
- The 17 Biggest Mistakes Startups Make With Their Investor Pitch Deck
- A Guide to Investor Pitch Decks for Startup Fundraising
- Don’t Waste Time on a Startup Business Plan—Do These 5 Things Instead
- 15 Key Questions Venture Capitalists Will Ask Before Investing in Your Startup
6. “We just started the company but we believe it’s worth a $50 million valuation.”
Unlikely. Investors will not invest in a company where the founders have unrealistic valuation expectations.
7. “We are going after a niche market.”
Many business ideas go after too small of an addressable market. Venture and angel investors are looking for companies that can grow to be big and result in “home run” returns. Professional investors are looking for the “next big thing,” not the “next small thing.” Think about how the business can scale to be meaningful and make sure you present it that way.
8. “Our product will sell itself.”
No, it won’t. You have to show that you have an understanding of how to get customers. You can’t just assume that if you build it, customers will come. You need to present a well-thought-out customer acquisition strategy, a coherent marketing strategy, and evidence that you understand customer acquisition costs and that you have a good sense of the lifetime value of customers.
9. “Let me send you a link to our 50-page business plan.”
First of all, investors prefer to see a concise 15-20 slide pitch deck rather than a business plan. Second, don’t make investors go to Google Docs, Dropbox, or some other file-sharing service to get to the deck. Include it in your email as a PDF file.
10. “We are too early to worry about a marketing strategy.”
Investors want to understand if you have reasonable plans to market your product or service. How can you cost-effectively get to prospective customers? How will you use social media such as Facebook, Instagram, Twitter, etc.? Will you do search engine marketing, and can you show it will be productive? What steps do you plan to take to get some rapid early sales? What are your anticipated marketing costs?
Copyright © by Richard D. Harroch. All Rights Reserved.
