When talking with investors, these are the things NOT to say.
Finance is the lifeblood of any company, that much is obvious and needs no elaboration. And for any startup business, it is particularly important. Investment is a vital part of establishing a new business and a central tenet of that is projecting a positive, confident, and – most importantly – stable model of viable commerce to potential investors.
Being an entrepreneur and a company founder looking for investors is a case of half-businessman and half-showman; the need to convince investors of a potentially lucrative business opportunity with a presentation that is equal parts data-centered and idealism-driven. Investing in any company carries inherent and inevitable risk, so instilling a sense of confidence to potential investors entails both mitigating possible risks to their capital alongside convincing them of the financial advantages of joining your endeavor.
When founders embark on the journey of fundraising, a common misconception is the notion that they must “convince” venture capitalists (VCs) to invest in their startup. In reality, VCs often make crucial decisions within minutes of a pitch, assessing the problem, solution, team, and traction. Subsequently, every action and word from the founder can either reinforce or erode investor interest. This article explores phrases that consistently deter investors and jeopardize a founder’s fundraising efforts.
“We can sell this company within five years.”
While enticing to emphasize a quick return on investment, this statement signals a lack of commitment to long-term growth and a focus solely on financial gains. VCs prefer founders dedicated to building a business with the potential to reach $1 billion or more. Expressing a readiness to sell prematurely implies a prioritization of financial gain over solving the identified problem, a red flag for investors seeking passionate, problem-solving founders.
“We don’t have any competition.”
Claiming an absence of competition raises immediate concerns for investors, as virtually every business idea has been considered before. Effective competition analysis acknowledges that competition may not only come from similar products or services but also alternative solutions to the same problem. Presenting a realistic view of competitors, even indirect ones, demonstrates a thorough understanding of the market and showcases how the startup excels.
Additionally, reframing the competitors’ slide in the pitch deck is crucial. Rather than seeing a lack of competition as a positive sign, investors may interpret it as a lack of demand for the product. Identifying and addressing competitors allows founders to showcase their uniqueness and superiority in the market.
“We need you to sign an NDA.”
Requesting a Non-Disclosure Agreement (NDA) is generally discouraged in the venture capital world. VCs evaluate numerous ideas annually and signing NDAs would limit their ability to engage with various companies. From the founder’s perspective, confidence in the uniqueness of the execution and focus on implementation, not just ideas, should outweigh concerns about sharing information.
“We just need money.”
Presenting the company as solely reliant on capital injection raises alarms for investors. Successful pitches should highlight positive momentum and a clear trajectory toward success. Comparing the company to a car awaiting fuel implies a lack of inherent value or progress, deterring investors who seek opportunities already on a path to success.
“I don’t need a cofounder,” or “We just met a few months ago.”
At the pre-seed stage, the team is a critical factor in attracting investment. Dismissing concerns about team size or recent formation can cast doubt on the founder’s ability to execute the idea successfully. Acknowledging and addressing team deficiencies by outlining plans for strategic hires demonstrates foresight and commitment, crucial for securing early-stage investments.
Ultimately, successful fundraising involves not only showcasing the business but also understanding and aligning with the expectations and concerns of potential investors. Avoiding these common pitfalls increases the likelihood of securing the necessary support for a startup’s growth.
