Pitching VCs? Beware of These 5 Rookie Mistakes
Raising money from venture capital firms is never easy. But entrepreneurs who pitch to Venture Capitalists without knowing the ground rules are sure to strike out.
I had a chance to discuss this topic with veteran VC Ed Goodman, General Partner and Co-Founder of Milestone Venture Partners in New York City. During his career, Ed has invested in over 100 companies including Apple Computer and Staples office supply stores. He shared with me the five worst rookie mistakes that entrepreneurs make when pitching to venture funds. Do these sound familiar?
- Poor Communication. Getting VCs interested in your opportunity requires short, concise descriptions and well-written documents. Hone your executive summary and verbal pitch until it is jargon-free and crystal clear.
- Overconfidence. Entrepreneurs should be a confident lot. But every founder needs to know his limits and do what’s best for the business. Identify gaps in your executive team before you talk turkey with a VC.
- Exaggeration. VCs love to invest in big ideas with big markets, but entrepreneurs that exaggerate their opportunity are highlighting both their ignorance and their arrogance. Rather than brag about a broad market, clearly identify the subset of customers that are most likely to buy from you.
- Valuation. Everybody thinks their idea is worth $20 million. Sadly, its not. To get into a VC’s checkbook, you’ve got to have realistic expectations about ownership and stock value. If you are truly successful, it really won’t matter whether your initial valuation was $3 million or $5 million.
- Ego. It’s hard to believe, but many entrepreneurs will walk away from a $5 million investment offer because they think they can do better. Most live to regret it. Raising money is hard work – don’t make it harder by letting your ego get in the way of progress. Take the money and run!
Goodman says all of these mistakes result from thinking too much about your self and not enough about the company as a whole.
And then he gave me a bonus rule: Actions speak louder than words: “It's really about execution,” he says. “If you execute on your plan, people will want to put in more money, and the company will continue to grow. If you don’t execute, nothing else really matters.”
To be sure, there are plenty of wrong ways to attract capital. Make it easier on yourself by learning from others and practicing the basics. Knowing what is expected from you will help insure that you don’t strike out before the first pitch.
Dedicated to your (fully funded) profits:
David Worrell
PS: I'm a business owner just like you ... and I've played the VC game. Click over to my personal blog for more about startup funding and venture capital. When you get there, click JOIN for a free guide to raising all the money you need to start your business.
