Updated 28 March 19
Information overload goes hand in hand with life as an entrepreneur, especially when seeking advice for investment. Knowing what to say, and more importantly what not to say, is often the difference between receiving the coveted funding to take your business to the next level and going home empty-handed. You can know your pitch and data set like the back of your hand but this all goes out of the window if you say the wrong thing in your investment pitch.
After observing countless investment rounds here at Nova, we have compiled a list of the top 10 things you should avoid saying in a startup investment situation to help you take the best approach.
If you are expecting a big payday from your startup at an early stage from investors you are sorely mistaken. An investor’s money goes towards things like developing your product, marketing and R&D, not a swanky office space in Shoreditch or that yellow Lamborghini you feel you so desperately deserve.
It is not uncommon for investors to reduce funding or even insist on their founders relocating to mitigate the chances of lavish spending sprees occurring. It is more likely you will be subsidised for technology expenses and maybe the occasional free lunch with your clients. The bottom line is that investment is intended to grow your business, not your ego.
An NDA (Non-Disclosure Agreement) is a term frequently referenced in the startup community, often drawing rolled eyes and looks of disdain from investors - and with good reason.
You might think sharing your ideas with others could be the death of your business, but at the early stages of a startup this is very, very unlikely to be the reason for your startups’ failure. I hate to break it to you, but the chances are your idea is not entirely unique and investors will have listened to many similar ideas before. In the early investment rounds it is the founder, their team, traction to date and the potential of the problem they’re solving that differentiates a viable business from merely a unique startup idea. If you’re in a position where all of the value in your business could be lost if your pitch deck got into the wrong hands, it’s probably a sign that it’s not investable in the first place.
Requiring an NDA stops entrepreneurs from eliciting feedback about the solution to the problem, which probably will need refinement and criticisms. Instead of focusing on the idea, you should focus on the problem it's trying to solve.
Yes, you do - even nonprofit organisations have competitors and if you cannot find any for your startup this is normally an indication that you have not done enough research. Denying the existence of competitors will come across as arrogant and idle and will disincentivize investors to part with their money.
It is imperative to include at least one slide outlining your competitors to assure you have sufficient knowledge in your market. Also, do not slander or be disrespectful about your competitors when pitching for investment. The startup community is small enough that you could very well be business partners with your competitors in the future.
After acknowledging you have competition, you must outline what makes you stand out from the crowd and decide what your Unique Selling Proposition is. Throwaway comments that you are simply “better and faster” than your competition will not cut it unfortunately and investors will see through generic assertions that are not substantiated with hard facts.
Do you have a world leader in your startup’s field on the board of directors? Or maybe you are capitalising on a new product development technique that blows all competition out of the water? A USP is synonymous with investment because it is essentially what differentiates you from everyone else in the market.
Outlining your strengths to investors is all well and good, however, it is likely that you have some weaknesses that are worth acknowledging too. It takes a headstrong entrepreneur to admit there’s room for improvement in their business and the perceived weaknesses can alternatively be seen as opportunities for improvement.
The recognition of weaknesses is a sign of good character in business and with the right help, you can overcome them. Helping you overcome such weaknesses is an important part of our startup programme here at Nova, you can find out more here.
Did you know that over 90% of startups fail? Whilst our processes at Nova have dramatically reduced this industry failure rate, investors are well aware that this is a high-risk game. Whatever you do, do not sell a pipe dream and try to pull the wool over the investor’s eyes. They will see right through this and most likely not invest.
Failure is not necessarily detrimental and it can be an important learning curve in building a more successful business in your next attempt. Paint a realistic picture of what you expect, the best and worst potential outcomes from the business venture and how you are best mitigating risks.
Are you looking for an investor who falls in love with your startup after listening to your pitch, and decides to bankroll you purely because they love your cause?
Whilst it’s a nice thought, unfortunately, it’s not going to happen.
The main thing an investor cares about is what their financial return will be, and how long it’s likely to take for them to start making money. A contributing factor as to why an investor will want to invest in your business is because they foresee a highly profitable exit. So, if you do not have an exit strategy and if you stress that you never want to sell your business or IPO you can see why this will act as a deterrent to equity investors. Despite the importance of this, it is crucial that you only discuss your exit plan if this is instigated by the investors.
An unprompted, heavily detailed exit plan will indicate you are looking for a quick win and do not care about your business. This is a red flag to investors and shows an entrepreneur’s priorities are somewhat skewed.
If you are coming across as desperate for funding the investors will think either no one else wants to fund you, you are mismanaging your money or your business idea is destined to fail. The investors are investing in you as a person, as well as the business you have found. Therefore, you must play it cool even if you could really do with another revenue injection.
Remember, the cash will help you in the short term but it will not stretch very far if there are underlying problems with your business model that should be addressed.
If this is your mindset then it might be better seeking a loan rather than investment. Depending on the investment route you choose, the level of involvement of the financier will want will vary. However, in most traditional routes they will normally seek to not only provide your business with money to grow, but also bring their experience and knowledge to help your company achieve success.
This is particularly pertinent with the Nova process where the first two investment rounds are used to facilitate Nova’s team to build and launch your startup.
Even if the primary reason for seeking investment is for a capital injection it is not advised to voice this. You may come across as shallow and blinkered in your approach.
This one probably does not need much explaining. A sure-fire way to ensure investors do not part with their money is if you outline vacuous intentions to channel their investment away from your startup. Morale-boosting activities, the obligatory Christmas party, week-long corporate ‘team-building’ retreats - possibly great ways to bring your team together, but in the early stages at least, this will be viewed as non-essential and should be taken out of your pocket and not the investor’s.
If there is anything else you think entrepreneurs should avoid saying to investors we would love to hear your suggestions in the comments below!