9 Things Not to Tell an Investor
Disclaimer: I am not an investor, I just work at a Venture Capital firm.
I have probably met with more than 500 founders in the past two years, and every time I meet one, I get really excited. These entrepreneurs are so ambitious and positive that being around them gives you hope for a better future (especially the really impressive entrepreneurs). However, even the best entrepreneurs sometimes say things that make investors roll their eyes. As a result, my venture capitalist peers and I prepared a list of the things we hate hearing from entrepreneurs. I hope you find them useful!
1. “We will have to sign an NDA.”
The biggest rookie mistake founders can make is asking an investor to sign an NDA. These investors are seeing thousands of deals, so they won’t mind passing on your company. They will most likely not sign an NDA and tell you to have a good day. Remember investors want to invest in companies not steal their ideas, so just share your company’s information. Also, if you are the great entrepreneur that they must invest in, they must know that you are the only person who can execute your company’s vision.
Investors are people you should be willing to trust, if you do not trust them from the beginning they might be offended. Similarly, if you do not trust them, then do not go asking them for an investment.
2. “We have the best technology.”
That might be the case in many instances, but a founder cannot make that claim. If I go speak with your competitor, they would tell me the same thing. So, such a claim should not be said unless you can prove it during the first meeting. It is even worse when a non-technical founder tells me this. There is no way you have outsourced your technology and got the best in the business; even if you have an in-house tech team, you probably aren’t aware of how good they are.
Side note: investors really prefer a technical cofounder when investing in a technology startup.
3. “We don’t have any competition.”
It is extremely rare to find a company that has no competition; all companies have a competitor of some sort. Therefore, by saying this statement you are either 1) showing the investor that you came to the meeting unprepared and have not done any prior market research, or 2) that you are overly confident and think that your product is better than anything in the market. If it is the latter, then just remember that the market decides if you are better than your competitors.
4. “Our end goal is to be acquired.”
You would assume that an angel investor, accelerator, or venture capitalist would be happy to hear such a phrase. At the end of the day, that is how they get a return on their investment. Yet, that is not the case. Investors want to know that the founders are building something that they really believe in and that they want their company to grow as much as possible. Investors will not invest in a founder who just wants to get rich quick.
5. “All I need is capital, and I will grow.”
I hear this more often than you would expect. Many founders think their only restriction for growth is capital, yet that is far from true. What a founder needs in order to succeed is a great team, proper execution, a great product, etc. You cannot expect an investor to just believe in your company and give you the capital just because you think you have a great company but not enough cash. Capital is great, but it is not the only constraint for your growth.
I promise you, if you have a great team, a good product, and real traction, investors will be running after you. I have seen companies be able to fundraise in a few weeks because they were a solid company. Capital alone, is never the reason why a company is struggling.
6. Ridiculous Financial Growth
Recently, I sat with a company that had revenues of $30K in 2019, $40K in 2020, and an expected revenue of $1M in 2021. I thought it was crazy, I pointed out to the founder. They had an absurd answer that got me a little bit agitated. So I was quite rude and told them to come back to me next year when they hit that $1M in revenue. I wished them luck and ended the Zoom meeting. They were trying to convince me of something preposterous, especially since they have been in business for two years and I could see their historical number. Yes, VC money is risky money, but we are not stupid. We need things to make a little bit of sense, especially financially.
7. A High Valuation
This is my most common argument with entrepreneurs. Founders believe that their companies are worth millions when all they have is just an idea or a little bit of traction. Some founders have revenues of $100K and tell me their valuation is $10M. Their logic behind it is so funny actually:
“We will become a billion dollar company, so this is a great valuation to get in on now.”
“Company X got acquired in the US for $1.2 billion. We could potentially be acquired like them.”
“An investor that comes onboard at the early stage should understand that we have a long term vision.”
All of these excuses are horrible. By using them, you are doing one of three things: 1) You do not understand how the market prices companies. 2) You are surrounded by bad investors that are giving horrible advice. 3) Or you think investors are foolish, and you can pull one over them. High valuations will make an investor only focus on that and they will lose interest in your company quickly.
A few founders told me that they put high valuations because investors will negotiate it down. That is often the case if you are in a reasonable range, but if you are not, then you’re just shooting yourself in the foot.
8. “We will be closing our round soon.”
Some founders try to create a false urgency around their fundraise to create this “fear of missing out” effect. Usually companies that do this are bluffing and we know it. The entrepreneur would not be coming to us if they are about to close their round or if they are over subscribed; actually we would be looking for them. As a result, if you want to do this trick, make sure you do close your round by the deadline. Reputation is very important in the startup world, so try to keep it as clean as possible. A false urgency is not worth the reputational risk.
9. Lies
Investors can easily tell if you are lying or not. They rarely do any investments on the spot; they usually want to do some due diligence first. Therefore, if you hid anything or just lied, know that you will be caught. When you do get caught, you will automatically lose their investments. Investors must trust you with their money, so any red flags that could make them feel that you are not trustworthy is a deal breaker; so just be honest and transparent.
Bonus Tip: Be Humble!
Every once in a while, I meet founders that are quite arrogant and think that they know everything. These founders are frustrating and they make me want to end the meeting as quick as possible. Investors are really annoyed by egotistical entrepreneurs. Investors want to find long lasting partners that they can work easily and happily with. If supporting you seems like it is going to be a pain , investors will avoid working with you completely.
During my career I realized that most of the successful entrepreneurs I know are really down to earth people.
So there you have it, these are the 9 things investors hate hearing. If you think there is anything I missed or if you have any questions/comments, please add them below.
