As a startup, only the selected few get the opportunity to pitch to investors. If you’re like most entrepreneurs, your business consumes every thought, and pitching is the culmination of all of your hard work. The last thing you want to do is blow it. As an investor, I’ve watched a lot of startup presentations and listened to feedback from other investors. As a startup advisor, I’ve coached everything, from preparation to launch, to how to create a presentation that has a higher likelihood of getting funding. Here are six things to avoid in your pitch that are deal killers.
1. Don't make exaggerated claims
Don’t claim to be a unicorn or a disruptor. These statements are overused, and too many startups are stating this. A unicorn is a term used in the venture capital community that describes privately held startups with valuations of over $1 billion. This term was first popularized by V.C. Aileen Lee, founder of CowboyVC, an early-stage venture capital fund based in Palo Alto, California. Unicorns are often ‘disruptors,’ changing the industry as a whole. Uber is a prime example- does anyone use taxis anymore? Unless you’re the next Uber, stay away from the terms unicorn, and disruptor.
Tell them why your company is, or will be successful, and how you’re different from like products or services. Your S.W.O.T. (strengths, weaknesses, opportunity and threats) and competitive matrix analysis should give you a very clear indication. Make sure that you’ve completed thorough research, and can easily articulate this.
2. Don't use the 'hockey-stick' growth curve
The ‘hockey-stick’ growth graph is overused in financial projections. Stay away from it unless it’s believable and based upon solid information.
Every investor will want to have an estimate of R.O.I.- return on investment; this is typically the last slide. An investor always weighs risk vs. reward. If you’re selling a product and have more purchase orders than you can keep up with, this represents a lesser degree of risk. Your future financial projections are based upon your past growth rate, current purchase orders, and future prospects. You should have calculated estimates for years 1-5, post-investment. These must be realistic.
3. Don't lie
In the question and answer phase, investors will ask tough questions. If you don’t know the answer, don’t lie or ‘wing-it.’ Don’t worry about ‘losing face’ with the tough questions. Investors love the truth. I’ve heard a room of about 30 investors shower praise upon the the company pitching who told the truth and make statements such as, “that’s refreshingly honest,” “no one just comes out and tells the truth,” “good for you!” Better to say something like, “I don’t know the answer to that question, but I’ll find out and get back to you.” You’ll gain credibility; this also allows you to get that investor’s information, so that you contact them with the answer– and potentially continue the dialog. This give you higher potential for a win.
4. Don't use these two items for 'use of funds'
Watch out; this one’s a landmine. You’re raising money to fund your startup; the investor will want to know how you’ll use their money, also know as “use of funds.” The absolute worst answers are: to give yourself a salary, and research and development. An investor doesn’t want to pay to research your idea, and then pay more to develop your product. Why wouldn’t they just do it themselves?
Most startups seeking capital have a viable product and a revenue stream. Typically, when describing how you’ll use the money, you should divide this into categories, usually between three-five and give percentages to each: 30% marketing, 50% inventory, and 20% for staffing. Be sure to have a more detailed account in the event they ask you.
Avoiding these six common pitfalls will put you light-years ahead of your competition. You’ll stand a much greater chance of getting funded. If your a startup seeking sources of funding, drop me a line. I’d love to hear from you.