Tl;dr: 40 pitch red flags to avoid when fundraising
Fundraising? Don’t want to do stupid things? Here’s a blog for you. Now if you have been following me for some time, you know I normally write long blogs. This isn’t one of them. It’s 40 things that investors don’t like.
Monkey read, monkey don’t do.
- Will you sign my NDA = N00B – read for more
- Don’t know as much as an associate at a VC on your industry. I heard of a startup getting schooled on their industry last week by an associate. The team was embarrassed…
- Not knowing of a big competitor. Dude, Google… it signals you are not an insider
- We have no competition. Dude, yes you do. Inertia is a big competitor. There is always a way of doing something
- The competition sucks. Don’t talk crap about your competition. They don’t suck
- First time founders in general. Startup is hard. If there is no traction, I’m dubious if they can execute
- Bankers doing startup. Startup is cool atm… just saying. Sure there are exceptions, especially in fintech
- Fund my idea. FFS. Read
- Stupid forecasts. Claiming you will 100x each year is a great way to lose credibility. Better to say nothing than say something stupid
- No financial model. VCs want to know how you forecast your business. Worse than stupid forecasts is having no forecast
- Conservative. Never say this word especially when it relates to financial forecasts. No one believes you
- Massive forecasts. No, you will not get to $100m revenue in less than 5 years. Google got to $85m in its fifth year
- Don’t understand basic, key terms. Bookings, billings, revenue… You can understand top line SaaS terms here
- Our team is a competitive advantage: FFS. No. This is like on every slide around ‘competitive advantage’. There ARE some ballers. You aren’t one of them
- We will go viral. FFS… Almost no one has ever gone viral, at least for a prolonged period. I’ve authored the most advanced nerdy work on viralityif you really want to understand it. Real virality is f****** nuts
- Who is the CEO? I LOVE asking this. Sometimes founders look at each other in the room and I lose my shit laughing. They haven’t had the conversation
- Service based with no plan for a marketplace. VCs only do scaleable. Services don’t scale. You can start with it, but you can’t do it once you need to do things that scale. Read. Key reading
- I want to copy Facebook. No shit. Someone said that to me. I was like, what niche are you focused on? He was like, no, I want to copy Facebook? Worse pitch ever
- Tiny market size. Dude… VCs care about the market. Read. You can’t be big with a small market. Whatever, here are 3 slides from a prezzo I did at a demo day. It was in Rome… hence pizza joke
- Sole founders. There are exceptions, but sole founders really suck. There is just too much to do with no resources till you have the $ to hrie a management layer. 3 founders is 3x smart work. Blog on that
- Not full time. If you haven’t quit your job yet, or you intend having a side job whilst being funded they you aren’t all in on the startup
- Stupid on term stuff: Crazy terms and valuations… that is TC disease. You are not the exception.
- Tech company with no tech team: I get a lot of founders asking me qus on my live chat on my blog. One disturbs me and it is about hiring agencies to build their app. I just say if you are a tech company you have to be a tech company. You aren’t if it is outsourced. There is no core competency
- What do you invest in? Seriously? You meet an investor and ask about them? You should have done that before!
- Taking a long time to respond to emails: My mate set up a company with Cuban… partially because he loved how quickly he responded to emails. You’re looking for $ dude. Be on the ball
- Being aggressive aka not coachable. You are selling. Don’t be a dick. A number of times my friends have said they passed on a startup they really liked as the founder was not coachable. You want smart money. Hmmm. But you don’t listen. #irony
- We don’t want to sell. Are you kidding me… do I have to explain? See indie.vc
- We are building a lifestyle business. You don’t get it, dude
- The team sucks. Look at the non-founder layer. It ain’t getting better. They hired crap now, they will only hire crap in future
- Stealth mode. There are reasons (if you are a baller, I know one great example of why they were), but honestly WTF
- Let me get Jimmy to demo. Really? You are the CEO and you can’t do a demo in a pitch? You are meant to lead sales and you can’t do a demo? Wow
- Cold emails. Obviously. You need warm intros
- High salaries. If you are early stage, no one should be making six figures. Sure, they may be an exception for some super engineer, but the CXOs should be on ramen salaries. Some founders get tetch about this, but they’re idiots
- Buzzwords. Yawn. Don’t drop high-tech terms if it is obvious you really don’t do AI. You have some boring business and you are adding some AR feature? Come on. Never go on about disrupting. It is a cliche. And don’t get me started on describing a marketer as a ninja or yourself as a visionary. Peter Thiel says that buzzwords are one of his biggest turnoffs
- Jargon. Unless the people you are pitching are as nerdy as you on your specific industry, don’t go full on tech nerd. Either people don’t understand and they ‘don’t get it’ or they feel stupid. Neither are good
- Small gross margins. Margins matter. Especially if you are a SaaS company, margins less than 50% are not good
- Prior investors not doing pro-rata. If you have raised more then you need your prior investors to do their pro-rata. New investors assume the old investors to know more than them. They also know that investors double down on winners. If they aren’t putting in more cash, well they assume you are a dog in their portfolio stable
- No skin in the game. You need to have an answer to ‘how much have you invested in this company?’ Investors are all about you having a lot to lose so you want to win
- Crummy investors on the cap table. Investors want to invest with great investors. If you raise from dogs, they assume you have fleas. I encountered an interesting case recently. One investor hit the headlines for the whole sexual stuff. He invested in a company I know and one investor refused to invest out of principle. Just saying
- Fundraising brokers. These are people that help you raise money. 99% of the time VCs flat out hate this. I have a blog on this topic of fundraisers here
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Nice bit of comment, as usual. Tks, Alex.
People seem so unwilling to solve the “who is the CEO” question. If you can’t take ownership of that simple decision then how will you as a founding team handle serious issues down the line??
Hey Mick – In my experience it’s always fairly obvious who the CEO is. This is more of a question for n00bs.
My serial founder mate said he wouldn’t do a startup with me as we have the same skills (ie both CEOs).
I wish every startup founder could have a chance to read this (and related links). The only other way to learn the early stage in’s and out’s is to actually go out and f**k up in all the ways that you described, Alex. And let’s face it, that is time & opportunity lost! Thanks for sharing these terrific insights.
I came across this post, after following links from an email I received today. I know this one is from 2019, but as a new Founder, I really appreciate you candor. I feel my pitch deck narrowing with every article of yours I read!
Hey Peter – cheers! I try to only write blogs which are evergreen so advice shouldn’t change much or at all.
Well… I’ve spent a year and a half writing 275k words for the pitch deck course so I have many new views. That’s why I haven’t been posting much on decks for a while.
I’ve invented a concrete process to actually get your deck done. I use it with my clients at perfectpitchdeck, but trying to explain all my thought processes to make a logical deck with a strong narrative is really hard when I’m not making all the adjustments on the fly.
I really want to get something out as I know just a few core learnings will help you to stop wasting so much time!
Appreciate you leaving a comment.