Tl;dr: If you manage to get a meeting with a VC investor you should be glad to know they are interested and it’s yours to lose now. Thing is that investing is a personal business and they will bet a lot on the few interactions they have with you. I’m going to explain to you how you lose credibility when pitching VCs and lose the opportunity so you can avoid crucial mistakes.
VCs and some angel investors get pitched a lot. So much so that it is more their job to say no than yes. After being pitched so many times you get a bit numb and look to efficiently find ways to get to a quick no.
As a founder, you would love to hear yes in every meeting, but that’s not the reality. The best you can hope for is a clean no based on the merits of your pitch and startup. You can then take the learnings and apply them to work to a yes in a future meeting with another investor.
Stupidity is getting a no because you lost credibility with the investor and they can’t trust you.
Here is how you lose credibility with investors when you are pitching them in meetings.
Misrepresent your revenue, customers, and other metrics
You can choose what you share in your pitch deck in terms of your traction. You can’t however lie about what you show. You have achieved what you have.
Unless you are a moron, investors are going to believe you are purposefully misrepresenting your numbers and you lose all credibility. There is no coming back from it.
Ways founders do this when pitching VCs include:
- Saying that GMV is revenue
- Showing monthly growth rates without the underlying numbers so you can’t see what base the growth is from
- Claiming that users are customers
- Omitting key metrics that would give a more accurate picture
- Time periods other than monthly in charts. That quarterly number is being used to smooth out your revenue!
These are never “honest mistakes.” Investors will be able to tell.
Provide ridiculous forecasts
At some point you are going to be asked about your financials, not your current metrics, but how you are going to grow in the proceeding few years. I personally would not go there in a first meeting, but that’s another point.
Why do they want to see forecasts?
- Well, how ambitious are you?
- How large do you think you can get?
- How are you going to get there? What is going to be spent on what and how capital efficient will you be?
They also want to see if you are a numpty that doesn’t understand business.
Figuring out your financial forecasts is a series of blogs, but I think it should be obvious that the numbers shouldn’t be too small (you’re not a VC case), nor too ambitious to be unachievable.
Avoid showing you are going from zero revenue this year to $20m next year. It’s statistically unlikely and so you look stupid. Do you really, truly believe you can pull that off with your $1m raise? I don’t and neither do the investors you are pitching.
Don’t let the door smack your lying ass on the way out. please!
Read: Why you are making a financial model for your fundraise is wrong
Claim investors are investing when they haven’t committed
If you are a founder and you name-drop angel investors or VCs that haven’t actually committed to the round, it can really hurt. It not only makes you look naïve and inexperienced but you will come across as a liar. Angel investors and VCs are busy people, so if they haven’t committed to the round, there’s a good chance they don’t actually like your company.
Venture is a small world and most investors know one another. If an investor has interest and you just name-dropped someone, you can be sure those investors are getting a text to find out if they are in fact investing and what they think of you.
I passed on a deal because the founder told me two of my friends were investing, so I hung up and called them. I was pissed that the founder lied.
Stage managing AKA not answering the question
You can bomb a pitch by being unprepared and not being able to ask questions. At the far end of the spectrum, you can think you’re so smart that you try and ‘stage manage’ the meeting by controlling the narrative (something you heard someone doing on a podcast or something). You never really answer questions you don’t want to (Note: you are not a politician and your job is not to mishear the question and instead answer the one that you want to!) or try to move the conversation along. This isn’t good.
Investors basically live in pitch meetings and they know what they want to know. There are times when you repeatedly have to ask founders questions to get an answer, and it’s never really the full picture. You feel like saying “Shut the F up and just answer my questions!”
This is absolutely painful and a surefire way for investors to not want to talk to you ever again, let alone be on your board for the next 7 years.
If an investor asks a question, answer it warts and all. It’s actually great to mention your wounds and warts, and then explain how you and your team got over them.
Saying stupid things
There are a bunch of cliche things founders say in response to investor questions. The most famous one is “we have no competition”.
Investors hate it when you say you have no competition because it either means you are delusional or you haven’t done your research.
In the first case, it shows that you don’t have a clear understanding of your market and what you are up against. This lack of understanding will likely be reflected in other areas of your business as well, so it’s a red flag for investors.
In the second case, if you haven’t researched your competition, then you’re not serious about your business and you’re not worth investing in. Investors want to back founders who are going to do everything they can to win, and that includes knowing who their competitors are and what they’re doing.
Other examples of silly things to say when pitching VCs:
- This is our last round of financing
- Sign my NDA
- This is a sure thing, we’re going to the moooon
- The market is so large we just need to get 1% of China!
- We think these numbers are conservative
- We have the best team
- We have first mover advantage
Raising a meaningfully wrong amount of funds
It’s hard to know exactly how much money to raise, though there are tools (Read: How to forecast your fundraising till you exit) and paradigms to guide you on this number. What is dumb is asking for an amount that is an order of magnitude wrong.
If you are at series-B why are you raising $500k?
If you are at the angel stage, it’s almost unfathomable to believe you are getting $50m. And yes, I have had a number of calls where I had to remove founders from the mistaken belief that it was possible.
Asking for an unrealistic amount of funds, and then at an insane valuation puts you solidly in the waste of time bucket.
There’s a saying that you can judge people by how they treat waiters. Investors want to invest in ethical people. Since there isn’t an exam for that, they judge you by your actions. The short version is to be a good person.
- Turn up ten minutes early. Wait outside if you are earlier
- Be nice to secretaries. Smile and say please and thank you to everyone
- Don’t put your feet on the table
- Don’t be like Erlich Bachman and literally swing your dick around
- You can fill in the blanks if mom taught you well
- Dress bizarrely (Read: How founders should dress when pitching a VC your startup)
Flag you are difficult to work with
Investing isn’t just writing a check for an investor. It’s personal. If you are a VC you might end up on the board and have to interact with you for many years.
- Be confident but not arrogant
- Show you are knowledgeable but not a know-it-all
- Show you are coachable and willing to listen
If you come across as a dick, investors will just pass on you because life is too short.
Other obvious things to avoid with pitching VCs
If you want to avoid doing silly things, you can read 40 pitch red flags which will undermine your startup fundraise.
1. Don’t do your homework – know your audience and what they are looking for
2. Have a weak or non-existent business model
3. Fail to articulate your value proposition convincingly
4. Present a poorly thought-out or unrealistic strategy
5. Lack a clear understanding of the competitive landscape
6. Overstate the potential market size or profitability of your business
7. Make unrealistic promises about what you can achieve
8. Use too much jargon or technical language that investors don’t understand
9. Come across as arrogant or entitled
10. Fail to take feedback and criticism constructively
11. Fail to prepare adequately for meetings
12. Show up unprepared or late for meetings
13. Ramble on and on without getting to the point
14. Be vague and ambiguous when giving answers to questions
15. Make excuses for why you haven’t achieved more success thus far
16. Talk down about your competition or dismiss their relevance
17. Try to control the entire conversation and not let investors ask questions
18. Fail to provide clear and concise information in presentations or proposal documents
19. Fail to provide evidence that supports your claims or projections
20. Refuse to acknowledge when you are wrong
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