Entrepreneurs from early stage startups have to pitch to investors to raise financing, and many entrepreneurs are inexperienced or terrible at making the presentation. As a venture capital and angel investor who has heard many pitches, I’ve compiled a list of mistakes and things to avoid if you are an entrepreneur seeking angel or venture financing.
Mistake #1: Sending me your executive summary or business plan unsolicited.
Investors routinely discard or don’t read unsolicited emails. They get hundreds if not thousands of such emails, and they can’t spend the time sifting through them all to find that diamond in the rough. But what they will pay attention to is a referral from someone in their network – a lawyer, an entrepreneur from one of their portfolio companies, or a fellow venture capitalist.
Mistake #2: Pitching me your company unless it’s clear that you are in a space I am interested in.
Some investors only care about biotech. Or mobile apps. Or clean tech. Or Internet and digital media. Do your homework first before trying to pitch me to make sure your company is in my sweet spot.
Mistake #3: Giving me a 50-page business plan to review.
I don’t have the time to review a 50-page business plan up front to decide whether it’s worth taking a meeting or following up. Give me a 2-3 page executive summary and maybe a PowerPoint deck.
Mistake #4: Not showing me why the market opportunity is big.
Most investors are looking for businesses that can scale and become meaningful. So make sure you address this issue right up front as to why your business can really become big. Don’t present any small ideas. If the first product or service is small, then perhaps you need to position the company as a “platform” business allowing the creation of multiple products or apps. I will want to know the actual addressable market and what percentage of the market you plan to get over time.
Mistake #5: Coming in with your team to a pitch meeting, but only have the CEO speak.
Investors want to know that you have a good team. Only having the CEO speak at a pitch meeting is a mistake. How will the investor gauge whether the other team members are any good if they don’t hear them speak? And please don’t have the team members contradict themselves.
Mistake #6: Telling me you don’t have any competition.
Telling me you have no competition likely says you are unrealistic or naive. Of course you have competition, whether direct, indirect. or someone who provides a substitute solution. And your analysis of your competitors will show me you have an understanding of the market.
Mistake #7: Showing me uninteresting or unrealistic projections.
If you show me projections for the company to become $5 million in revenue in five years, I will have little interest. I want to invest in a company that can grow significantly and become an exciting business. Alternatively, if you show me projections where you are at $500 million in three years, I will just think you are unrealistic, especially if you are at zero in revenues today. Avoid assumptions in your projections that will be difficult to justify, such as how you will get to a 400% growth in revenue with only a 20% growth in operating and marketing costs.
Mistake #8: Asking me to sign an NDA before you will share information with me.
Most investors have a policy not to sign non-disclosure agreements. Why would you want to put a hurdle in front of being able to connect with an investor? And if you have something highly confidential, don’t share it with me.
Mistake #9: Giving me confusing or bad answers to my questions.
Entrepreneurs should practice their pitch with friends and advisors before presenting to an investor. You need to be prepared to give crisp answers to questions. You have to anticipate the difficult questions you may get. Telling me that “you will get back to me with an answer” seldom leaves a good impression. If I am asking you questions, that’s a good sign that I am engaged. So do your best to answer them right away. Don’t evade the hard questions or tell me that you will get to it later in the presentation. I want to see if you can think on your feet. Expect to get interrupted during your presentation.
Mistake #10: Not telling me what problem your business solves.
What problem does your business solve? Does it matter at all?
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Mistake #11: Presenting unrealistic valuation expectations for your company.
If you tell me you want a $100 million valuation when you started the business three weeks ago, or don’t have much traction yet, the conversation will likely end very quickly. Often, it’s best not to discuss valuation in a first meeting other than to say you expect to be reasonable on valuation.
Mistake #12: Giving me clichés.
Phrases to avoid:
- “All we need is 1% of the market” (unlikely you will get that)
- “We will get huge viral usage” (unless you show me early traction, that will be difficult to believe)
- “This product will market itself” (no, it won’t)
- “Google will want to buy us” (maybe, but not likely)
- “Our projection numbers are conservative” (just once I would like to hear an entrepreneur say, “Our projections are wildly optimistic”).
Mistake #13: Having more than 20 slides in your PowerPoint deck.
You will have an hour at most to make your pitch. So overloading your PowerPoint deck with too many slides will cut into the crispness of the presentation, and you won’t have time to get to the slides at the end of your deck. If an investor is interested, you can always provide more detailed information later.
Mistake #14: Forgetting to highlight your team’s experience and credentials.
Many investors consider the team behind a startup more important than the idea or the product. The investors will want to know that the team has the right set of skills, drive, experience, and temperament to grow the business. I want to be shown all of this together with a passion to do something truly great and unique. Anticipate these questions:
- Who are the founders and key team members?
- What relevant domain experience does the team have?
- What key additions to the team are needed in the short term?
- Why is the team uniquely capable to execute the company’s business plan?
- How many employees do you have?
- What motivates the founders?
- How do you plan to scale the team in the next 12 months?
Mistake # 15: Not paying attention to detail.
Make sure your presentation doesn’t contain typos or inconsistencies. Present a well-written, visually interesting presentation. Include page numbers on each slide so I can easily reference a specific page. For your legal protection, put a copyright notice at the bottom and add the phrase “Confidential and Private.”
Mistake #16: Not doing a demo.
A demo is worth a thousand words. Show me a prototype or working demo of your product, app, or website. It will give me a better sense of what you are trying to do. Make sure it works well and isn’t buggy. Impress me with its look and feel.
Mistake #17: Not doing research on the investor and his portfolio.
Showing some awareness of my background and the companies I am invested in will facilitate parts of the conversation, and also shows you have done some advance due diligence for the meeting.
Mistake #18: Not looking at other pitch decks and executive summaries.
Looking at other pitch decks and executive summaries can help you improve your own. You can ask your lawyer or entrepreneur or angel investor friends for samples. Plenty are available on the Web, such as the deck for Mint.com, a startup that sold to Intuit for $170 million.
Mistake #19: Not understanding customer acquisition costs and long-term value of the customer.
I will be interested in your understanding of customer or user acquisition issues. What costs will you incur to acquire a customer? What will be the likely lifetime value of the customer? What channels will you use to acquire that user or customer? What marketing costs will you incur? What is the typical sales cycle between initial customer contact and closing of a sale? Not being prepared for those types of questions will hurt my perception of how well you have thought out your business plan.
Mistake #20: Not understanding the potential risks to the business.
I will want to test what you see are the risks to the business. I want to understand your thought process and the mitigating precautions you might take. There inevitably are risks in any business plan, so be prepared to answer these questions thoughtfully:
- What do you see are the principal risks to the business?
- What legal risks do you have?
- What technology risks do you have?
- Do you have any regulatory risks?
- Are there any product liability risks?
- What steps do you anticipate to mitigate such risks?
Mistake #21: Not being able to explain the key assumptions in your projections.
In order for me to believe your financial projections, I will want you to articulate the key assumptions and convince me they are reasonable. If you can’t do that, then I won’t feel you have a real handle on the business. I will push back on the numbers in the assumptions and I will want you to have a cogent, thoughtful response.
Mistake #22: Not articulating why your product or technology is differentiated from a competitor.
I will want to know why your product or technology is better than or different from what is already out there. You can assume I will know about competitive products or technology, so you need to have a good response. For example, “We are different from Instagram in three important ways: (1) we are easier to use; (2) we have better editing functions; and (3) we are monetizing earlier than Instagram was able to.”
Mistake #23: Not being able to articulate a coherent marketing strategy.
Just because you build something great doesn’t mean it’s going to sell or get user adoption. So I will care about your plans to market your product or service. What outlets are you going to use? How can you cost-effectively get to prospective customers? How will you use social media, such as Facebook, Twitter, LinkedIn, Pinterest, etc.? Will you do content marketing and put sponsored posts on sites like BusinessInsider.com, Forbes.com, and AllBusiness.com? Will you do search engine marketing and can you show it will be productive? What steps will you take to get some rapid sales or adoption of your offering?
Mistake #24: Not telling me what early buzz or press you have gotten.
Don’t forget to show me any early buzz or press you have received, especially from prominent sites or publications. Feature the headlines in a slide on your deck. List the number of articles and publications mentioning you.
Mistake #25: Not telling me what traction or customers you have already gotten.
One of the most important things for me will be signs of any early traction or customers. If you have an app, how many downloads have you gotten and how many additional ones are you getting a week? Have you gotten any brand-name customers if you are a software company? How can the early traction be accelerated? What has been the principal reason for the traction? Show me how you can scale this early traction.
Mistake #26: Being unable to tell me how you will invest my investment capital and how long it will last.
I will absolutely want to know how my capital will be invested and your proposed burn rate (so that I can understand when you may need the next round of financing). It will also allow me to test whether your fund-raising plans are reasonable given the capital requirements you will have. And it will allow me to see whether your estimate of costs (e.g., for engineering talent, for marketing costs, or office space) is reasonable given my experiences with other companies.
Mistake #27: Not selling me on your intellectual property.
For many companies, their intellectual property will be a key to success. Investors will pay particular attention to your answers to these questions:
- What key intellectual property does the company have (patents, patents pending, copyrights, trade secrets, trademarks, domain names)?
- What comfort do you have that the company’s intellectual property does not violate the rights of a third party?
- How was the company’s intellectual property developed?
- Would any prior employers of a team member have a potential claim to the company’s intellectual property?
Mistake #28: Not explaining the product or service well enough.
The entrepreneur must clearly articulate what the company’s product or service consists of and why it is unique, so expect to get the following questions:
- Why do users care about your product or service?
- What are the major product milestones?
- What are the key differentiated features of your product or service?
- What have you learned from early versions of the product or service?
- What are the two or three key features you plan to add?
- How often do you envision enhancing or updating the product or service?
Conclusion Not all of these mistakes are fatal. And as you practice and make more presentations to advisors and investors, you will learn what they care about and what doesn’t resonate with them. So make sure to adapt your PowerPoint deck, Executive Summary, and presentation from these learnings.
Copyright ©2014 by Richard D. Harroch. All Rights Reserved.
Richard Harroch is a Managing Director and Global Head of M&A at VantagePoint Capital Partners, a large venture capital fund in the San Francisco area. His focus is on investing in Internet and Digital Media companies. He is the author of several books on startups and entrepreneurship. He was also the founder of several Internet companies. He is the co-author of Poker for Dummiesand a Wall Street Journal bestselling book on small businesses. He was also a corporate partner at the law firm of Orrick, Herrington & Sutcliffe, with experience in startups, mergers and acquisitions, strategic alliances, and venture capital.