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I’ve had the luxury of hearing thousands of startup pitches. This has provided me with a unique opportunity to spot pitching methods that work regardless of market conditions but also those that consistently fail no matter the stage of the company, experience of the founders or market conditions.
A significant misconception for founders when fundraising is the belief that they must “convince” a VC to invest. The truth is that most VCs decide whether they are interested just minutes into a pitch when they hear the problem, solution, team and traction. After this, every action you take as a founder, every word you say, is simply an opportunity to give that investor a reason NOT to invest.
With this in mind, let’s look at some phrases that consistently give investors a reason not to invest and kill founders’ chances of fundraising.
1. “We can sell this company within five years.”
Building a startup from an idea to a successful company is hard. It takes extreme dedication and hard work. While many founders believe that explaining to investors how they might be able to return their capital (and promising a short timeframe for that return) can be enticing, the truth is that when dealing with venture capitalists, they want to see your commitment to building your business to $1B+. When you start talking about selling the company in the short term, it demonstrates that:
- You are not 100% focused on the growth of the business.
- You are more interested in the money than the problem the company solves.
The best startups have founders who deeply care about the problems they solve for their customers and not people who are simply trying to get rich.
Claiming that you can sell a company in the short term is a major red flag for investors.
Related: Should You Pitch Your Startup to Early-Stage Investors?
2. “We don’t have any competition.”
When an investor hears that you don’t have any competition, they immediately become concerned. Nowadays, there is no business idea you can come up with that someone has not thought of before. So, if there is no competition, you must have an incredible reason. Often, unless there is a recent technological innovation or legal change, there is no reason why you won’t have some competition.
Many founders make the mistake of claiming there is no competition because they think about competition not as other solutions to the problem they are solving but as other companies offering the exact product/service. For example, when AirBnb pitched, they included Craigslist as a competitor. While Craigslist isn’t in the business of allowing people to stay in strangers’ homes instead of a hotel, the site can connect with others and arrange to stay with someone in a foreign city. Therefore, it is a viable solution to the problem AirBnb was solving and is a competitor. Thinking of competition in this manner will help you find the right competitors to list in your pitch deck.
Finally, reframing how you think of the competitors’ slide in your deck is essential. Founders often believe that a lack of competitors is a good sign to investors; aside from raising concerns that you don’t fully understand your market, having no competitors can signal to investors that there is no demand for your product. If nobody else is even trying to make money in your market, maybe there isn’t a market to begin with. This slide is your chance to show that (i) there are competitors and (ii) how you are better.
3. “We need you to sign an NDA.”
Venture Capitalists will not sign an NDA. As an investor, I can confidently say that the conversation ends when a founder asks for an NDA. Investors are hearing thousands of ideas a year and picking the top 5-10; no investor will sign an NDA that risks them being unable to work with dozens or hundreds of companies to hear your pitch.
From the founder’s perspective, you shouldn’t be worried about sharing your ideas unless you have patent or IP considerations. The reality is that companies succeed based on their execution, not ideas. If you have a great idea, you should also believe that you are uniquely positioned to execute the concept in a manner nobody else can. If that isn’t the case, you are unlikely to succeed anyway.
Related: This Is How Overfunding Can Kill Your Startup
4. “We just need money”
Investors hate supporting companies that aren’t already on a path towards success. When pitching your company, you should never talk about your company as a parked car waiting for gas (money) to get going. You should always pitch your company as a car racing toward the finish line; you could go much faster with more gas.
Any indication that your company does not already have positive momentum and is relying on a capital injection to get moving drastically increases the risk associated with the business and ends most VC conversations.
5. “I don’t need a cofounder,” or “We just met a few months ago.”
Especially at the pre-seed stage, your team is your most investable asset. Anyone can copy your idea. Investors are looking for a team they believe can execute the idea. If you dismiss their concerns about the size of your team by arguing that you can do it alone or show that your team hasn’t worked together long, you create doubts about your ability to execute. If there are deficiencies in your team, don’t try to brush them off; instead, focus on how you will remedy them through strategic hires to ensure your company’s success.
Founders breaking up or giving up is the number one cause of startup failures. While this may seem like a trivial question to you. For investors, the long-term commitment and potential of the founding team are the primary considerations in any pre-seed or seed-stage investment.
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