Source: Mark Achler, Managing Director, MATH Venture Partners and lecturer at Northwestern, Kellogg School of Management
As a venture capitalist, I meet every day with two or three entrepreneurs who pitch me to invest in their dreams. (Last year, we reviewed more than 2,000 new companies.) Having done this now for 20 years across three funds, I’ve heard every kind of pitch imaginable. Here are five examples of what not to say to a VC:
“I have a big potential customer that is just about to close.”
My partner Troy Henikoff loves to tell this story. In 1999, he was the CEO of a startup called SurePayroll, one of the very first online payroll providers. As Troy pitched me, I was ready to commit. Then he said the almost fatal words: “We are close to signing up as our first white-labeled customer. It’s a game changer for us.”
My interest only heightened, though my response was chilling to him: “That’s fantastic; I’m even more excited. I’ll give you a term sheet when the Wells Fargo deal is signed.” Troy had boxed himself into a corner: He had sold past “yes.” While I probably would have done the deal without Wells Fargo, the investment now hinged on this big customer. The good news is both deals closed, and eventually the company went on to a very successful exit. But the lesson is simple: Avoid over-promising and don’t oversell—stop when you hear “yes.”
“It’s okay if we don’t deliver what we promise—we can always fix it later.”
When a VC invests in a startup, this is often the start of a relationship spanning seven to 10 years, and sometimes longer. To us, integrity and shared values are everything. We are constantly on the lookout and ask probing questions to make sure we are on the same page around shared values. Integrity is everything and trust is paramount. If we don’t trust you, we’re not going to invest. Any statement that casts doubt on your integrity—some version (implicit or explicit) of, “It’s okay if we don’t deliver on what we promise”—will almost certainly kill a deal.
What’s your investment thesis?”
Getting time with a VC to talk about investing is one of the most important meetings an entrepreneur can have. Going in unprepared is a huge mistake—in fact, we view it as a proxy for the level of work, effort, and due diligence the entrepreneur will do when they meet with potential new customers. It’s an almost immediate deal killer for us if the entrepreneur comes into a meeting unprepared and didn’t take the time to look at our website to understand who we are, what our investment thesis is, and what our hot buttons are.
“I just want to grow it fast and then flip it quickly.”
This may sound paradoxical since we are in the business of making money for our limited investors, but we are looking to invest in entrepreneurs who have a deeper sense of purpose, mission, and the rock-solid belief that if you put your head down and build a great company, then eventually good things will come. We believe in the servant leader who puts the needs of their customers, employees, and shareholders first. Yes, we want to invest in entrepreneurs who are motivated by making a lot of money, but who want to do it the old-fashioned way: by earning it—building a great company on a solid foundation.
This is my all-time favorite dis an entrepreneur can say to a potential investor. I remember back in the late ‘90s when entrepreneurs would pitch me an unproven concept and look me in the eye with a straight face and ask for a $25 million valuation without any revenue—because that was “market.” And when I said no, I heard, “Oh you’re just a dumb VC and don’t understand the Internet…”
There are many famous cases where the investor is actually wrong. Doing something cutting edge and visionary is truly hard to sell, and many investors are risk avoiders—not risk takers. That said, the question is: Are you optimizing for the short term or the long term? It’s a small world out there. You never know when you might interact with the potential investor again, whether later in your company cycle or for your next venture. You should be nurturing relationships, not ending them. While it’s true that we may just not get it, it’s more likely that we do, and that we can share some hard-fought wisdom with you—provided you are open to hearing it and learning together.
About Scale Finance
Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance has multiple offices in the Carolinas including Charlotte, Raleigh/Durham, Greensboro, and Wilmington with a team of more than 45 professionals serving more than 130 companies throughout the region.