What Not to Say to Investors
The world is full of advice for what to say and how to pitch to investors, but what about what not to say?
Rookie entrepreneurs are often far too eager to try to impress investors and end up saying things that set off alarm bells.
Over the course of my consulting career, I’ve written a lot of successful business plans and spoken with countless entrepreneurs. After listening to so many pitches, I have identified some phrases you should never use with investors, either in conversation or in writing:
- “All we need is 1% of the market.” Investors are not interested in companies targeting only 1% of a market. Venture capital firms want to invest in startups that could potentially provide a 10, 20, or even 30 times return on investment. This means betting on companies that are going after a substantial share of their target markets. Founders who say this are also forgetting that the first 1% is the hardest won of any market.
- “Forrester projects our market will be worth $80 billion in three years.” If you are opening a restaurant, it doesn’t matter how big the global market for food is. Similarly, if you develop CRM systems, the global market for software is irrelevant. You need to drill down to the total addressable market – the niche within the larger market that represents actual potential customers you can reach.
- “Our market is prime for disruption.” True market disruption is almost never the result of a startup and its first product. It’s fine to have a long-term vision for changing the world, but investors are more interested in concrete, achievable plans. That means having a marketable solution for an actual problem. You’ll attract sales and investors if you focus on building a minimum viable product that makes customer pain go away. You can change the world once you’re an established player in the market.
- “Amazon is too slow to be a threat.” Regardless of how you would like to portray them, big companies are big competition. If they pose no threat to you, it’s because the market is too small for them to bother with. Phrases like this don’t project “swagger” – just foolishness.
- “We’ll dominate the market through first-mover advantage.” What you’re really saying is that you lack a competitive advantage. Startups need to do at least one thing better than their competition; being first is not enough. First mover advantage isn’t sustainable. If you’re truly onto something good, competitors will notice you, replicate your product, and catch up by the end of the quarter.
- “A veteran CEO has agreed to join after we get funded.” A big part of the CEO’s job in a startup is to get it funded. And a big reason investors become interested in a startup is because it is being led by the right CEO. Show investors that you understand these dynamics and priorities by getting the CEO on board before you seek funding.
- “Only our team is poised to execute on this opportunity.” No one has a monopoly on knowledge and implementation. Statements like this tell investors that you are delusional and difficult to work with.
- “Our patent will protect us.” Most patents can and will be circumvented if the market opportunity is attractive enough. Furthermore, a patent simply gives you the right to sue somebody who infringes, and you most likely won’t win if your opponent has a huge legal budget because they will drag out the suit until you run out of money.
Learning what not to say to investors is often more useful than advice on what to say since every startup is unique. You also might have noticed that the recurring theme in the statements above is that they are all indicators of either insufficient research or unwarranted bravado.
Pitching to investors is an art. You only get one shot with most investors, so make it count. Make sure your pitch is polished until it shines, and your pitch deck… well, that’s another article.