Unless you’re sitting on a huge inheritance, a prior successful business sale, or have the ability to scrape by to bootstrap there is a good chance you’ll need investors to help get your startup going. Dealing with potential investors is tricky to say the least and goes well beyond just identifying them. Once you do get a meeting or even a chance encounter here are a few things you should try to avoid when pitching potential investors (in no specific order):
- Stating a Lack of Competition – When you tell a potential investor that there’s absolutely no competition for your business model, they hear one of two things: either you’ve completely failed at market research and don’t know your customer base, or you’re pitching an idea for which there is no market. Either way, you’re not painting a very convincing picture.
- Guaranteeing a Return – You want to encourage people to invest in your business, and you know investors are in it for the return. Still, this doesn’t mean offering them a guaranteed profit is going to increase their chance of signing on for the ride. In fact, it can do just the opposite. There are no guarantees in business, and a seasoned investor knows this to be true. Making unrealistic promises about profitability, especially in the short term, can leave potential investors turned off immediately.
- A Lengthy Elevator Pitch – Some of your most valuable opportunities will be short and unexpected, so you need to have an elevator pitch ready for those moments. If you can’t hit the high points of your elevator pitch in less than a minute, you’ll have trouble snaring the attention to secure an actual pitch meeting.
- Skipping the Exit Strategy – Your goals may be to start a successful long-term business you can turn into a family empire, but your investors aren’t thinking about returns over the course of several generations. They want a return in less than ten years, so you’ll have to address the exit strategy for your investors, something most entrepreneurs overlook altogether. How will your investors see a return if you’re not banking on a long-shot IPO?
- Insisting on Non-Disclosure Agreements – The desire to protect your business model is an understandable one, but demanding your investors sign an NDA before the pitch is a surefire way to derail negotiations. In all but the most innovative situations, the investors to whom you’re pitching will have seen your idea or one with striking similarities before, and know they will again. Most will not run the risk of litigation in the future just to hear your startup pitch.
- Leading with Your Backstory – No matter how compelling your life history may be, your investors don’t want your biography as a lead-in to your business plan. The backstory doesn’t indicate whether or not your business will be lucrative, and if your pitch isn’t able to stand on its own in the absence of your memoirs, it’s time to go back to the drawing board.
- Gunning for Sympathy Dollars – Just as it’s a bad move to lead with your life history, it’s also poor form to start your pitch with a story about any of your personal tragedies. You’re not going to get funding by virtue of having suffered through difficulties in your life; investors are looking to invest in financially sound business proposals.
- Pushing a Religious or Ethnic Angle – Your funding pitch should detail your business plan, not your ethnic background or religious beliefs. It’s always best to avoid any mention of religion or ethnicity unless these things have a direct bearing on your business and product.
- Starting with Flattery or Connections – You may be a fan of the potential to whom you’re pitching a proposal, share an alma mater or that you grew up on the same street, but flattery and pointing out things you have in common with investors is a great to waste valuable time. Remember, you’ve got a short window to showcase your business plan, investor exit strategies, market research and other pertinent information. Don’t squander that time attempting to build an emotional connection with investors.
- Relying on the Product to “Sell Itself” – Customer acquisition is crucial, and your potential investors want to hear how you plan to build a customer base. Saying your product will “sell itself” shows a lack of foresight and, again, a potential lack of market research.
Learning what not to say and do are only helpful, though, if you understand why these things can have a negative impact and derail an otherwise promising pitch. It’s not enough to avoid tricky phrases; you need to know what potential problems they highlight in your business plan. Even with all the right information and a great pitch, it may take time to secure the funding you need to get your startup off the ground.
NOTE: Some of these came from similar posts by Mark Cuban on Cyber Dust. If you join Cyber Dust be sure to add me there as well. My Cyber Dust username is kenneymyers.