Tweet

How To Lose An Investor Before You Finish Speaking

Guest post by: cynthia kocialski

Article Overview: Start-up killers are those spoken statements that will lose the funding or customer deal for the entrepreneur. When speaking to someone about the new product or the business proposition, there is often the moment when you know that you have lost your listener. One misspoken comment and everyone wants to leave as soon as possible. They’ve made their decision and they want you to stop wasting their time. It’s their gut reaction. What are some of these turn–offs?

How To Lose An Investor Before You Finish Speaking

Start-up killers are those spoken statements that will lose the funding or customer deal for the entrepreneur. When speaking to someone about the new product or the business proposition, there is often the moment when you know that you have lost your listener. One misspoken comment and everyone wants to leave as soon as possible. They've made their decision and they want you to stop wasting their time. It's their gut reaction. What are some of these turn-offs? Investors' Money Getting No Respect

Having an apparent disregard for the investors' money will often sink a deal or make investors wary of what is to come of the start-up in the future. Two co-founders presented to angel investors and when one investor asked what if the start-up encountered problems, they flippantly replied they'd just go back to their old jobs. Investors want to know you are going to give it your best.

Yet, another start-up CEO after raising $2 million in seed money from private investors stated that if the start-up didn't work out, well ... the investors could each afford to lose their $100,000 or more, they'd still continue to have pretty nice lives. When it came time for another funding round, the current investors would not invest further unless the CEO stepped down.

Zooming In On the Exit

Focusing on the exit strategy too early leaves investors wondering about what the entrepreneur's principal concerns are for the project. Founders need to be passionate about the product idea and the business, and stating that you'd be happy with a specific amount of millions in a few years leaves the impression you just want out. Entrepreneurs should be most concerned with building the company.

Big Market Numbers

Phrasing the potential market penetration in terms of "Big China" will make investors cautious. This occurs when the entrepreneur makes some sweeping statement such as everyone in the world could use our product and then states if we only capture some small percentage of the market then look at how profitable the start-up will be. The only company I know that takes this approach is Coca-Cola, which measures market penetration based upon how many fluid ounces of liquid is required for human beings to survive and determines how much Coke consumers drink in terms of this basic human requirement. It's great if the start-up can capture a small percentage of a very large market, but how do you get there from ground zero. That's what investors want to know - how are you going to get those first customers and how are you going to grow to a small following.

Another killer is the bottoms-up versus the top-down market size numbers. A top-down approach is mentioning the numbers provided in research reports by the analysts. These tend to be broad numbers and don't necessarily indicate the addressable market. If the investors think the market numbers are inflated too much, they will stop listening. Just the other night, a CEO was pitching software to alleviate the possibility of being audited by the IRS with the trigger being questionable claimed mileage. The CEO based the business model on the number of businesses using mileage. The angel investors came back with he remembered reading an article with the number of people who are audited every year and the percentage was quite low, so the number of audits triggered by this one criterion had to very small and therefore he didn't feel the market was large enough to warrant an investment.

No Competition

This is always competition. Somehow your customers are fulfilling their needs today. Competition can be as simple as continuing to do things as they are doing them today. Never say there is no competition. What investors want is a proven market, one that is young and growing - mature and saturated markets need not apply because they often require too much capital to overcome the incumbents, not because they are not viable.

No Customer Input

Products are developed for customer usage. Not involving or interacting with the customer early enough is a sign of trouble in the future. Even getting customers to act as references for your proposal is good. It can be as simple as having a meeting to discuss your product and asking them if they would buy the product once it is available. Start-ups can set up customer advisory programs where the customers provide feedback in a formalized manner.

Disruptive or Break-Through Technology

If the founders emphasize that their start-up has break-through or disruptive technology, then be prepared to immediately state why. Not many investors believe this. Most will tell you it's a myth. Things referred to as disruptive or break-through are viewed this way as a matter of historical perspective - the invention of the wheel, the first airplane, the personal computer, and the Internet. PCs were first seen as hobbyist toys, but they weren't considered disruptive in their infancy. It's only in retrospect that they were viewed as such.

The same can be said of an emerging market or technology, predicting one is difficult but hindsight is much better. When I was in graduate school, robotics was predicted to be the next big market segment. I even did my thesis on computer imaging systems for robotics. Robotics never did become one of the hot or trendy technologies.

Being Conservative

Entrepreneurs seem to believe that investors want to hear that their numbers and estimates are conservative. Investors know that backing a start-up is a very risky business, and conservative isn't what they are interested in, nor is it what they expect. There are plenty of conservative, less-risky investment vehicles available to investors. Just the other day, a CEO gave me a pitch and the word "conservative" was used so many times that I started to count its usage.

The Devil in the Details

When entering into a market, not understanding the nuances of the business will cause failure. It's the details and subtleties of an industry and customer that make a product successful. Investors and customers want to know the start-up has experience in the market.

Appearing Non-Coachable

The appearance of being non-coachable. Every time an investor or customers asks a question, they are impacting valuable information. Not listening or addressing their concerns is a start-up killer. Becoming defensive when they ask questions and probe deeper is a negative as well. These are all signs that you won't be able to build an effective team and recognize the need to change the original plan and idea in a responsive manner.

Being Too Eager to Abdicate the Throne

An entrepreneurs looking to abdicate the throne is not a good sign either. This happens when the founder is the CEO, but doesn't want the CEO's job and wants to find a replacement. There's a difference between succession planning and abdication. I find this happens when the CEO discovers that fundraising is the bulk of a start-up CEO's job and just wants to be involved with the technology or the business. This also happens when the CEO has taken funding from a gaggle of private investors and he doesn't want to deal with the investors. Sometimes the CEO wants to go into self-imposed exile by stepping down into an advisory role or a board position, and it's just one more step to leaving the project all together.

Proposing Yesterday's Trend

The entrepreneur has a different perspective than the investor. The investor has the ability to select a company from among many proposals in different markets. The entrepreneur is building a company based upon his expertise and background. The entrepreneur can't chose from among many different markets. An expert in Internet security software shouldn't start a pharmaceutical company. The problem for entrepreneurs is what's hot is fundable and what's not simply won't attract money. Like it or not, start-up trends last about seven years, after which time, little money will flow into the segment.

Related Articles
  I'll Never Do An Investment In That Kind of Thing Again
  Gold and Silver Bullets: Critical Messaging for Successful Investor-Funded Firms
  Speaking Personally - 3 Questions & Answers
  Winning the Success Race
  Thinking Like an Investor
  Are You Raising Funds For Your Business Legally?
  Who Should You Use to Raise Your Capital?
  Top Seven Ways to Improve Your Presentation Skills
  Joint Venture
  When Plywood Siding Is Damaged
  When Should You Write the Executive Summary of Your Business Plan?
  Warren Buffett and his Effect on the Stock Market! Part 2
  Power Presentations Tips 02: Begin with the end in mind
  Who Are Angel Investors
  Great Example of Blogging Changes to Your Product
  Right of First Refusal
  Living With Fear
  Keys To A Powerful Business Plan
  Stay Focused - When The Going Gets Tough
  Starting Your Company With Angels...Can I Trust Them?

Article Tags: entrepreneur, funding, investor presentations, startup funding, venture capital



Related Forum Posts
Re: What are your June Goals? - Nice Evan, congrats on your book draft Finish the goals I didn't finish in May - smiles I want to clean up my primary Gmail account Finish my new websites Continue my 3rd edition of 3 volumes or ..... many smaller new editions Lean more about Penguin Read/re-read a book a day Evaluate Kindle There you go; that is a start since I have never posted goals before
Willing to Fail Your Way to Success - Entrepreneurs in my opinion, must be willing to fail. (This is that risk-taking factor quoted in the other post). If you aren't willing to fail then you don't take risks and if you don't take risks you do I like to call (I am qouting an awesome book called Play to Win!) 'Playing Not to Lose' instead of 'Playing to Win'. When you Play to Win you must risks. Risks are how you build a business and innovate.
Re: Good day everyone! New here. - I feel you're on the right track Calflowers, there's a great group here, very helpful and engaging. Speaking of, is there anything we can do to help? What's your business? What are your main desires for it?
Re: 15 Ways You Can Look Amazing on LinkedIn - Speaking of LinkedIn... How about we all help each other out by giving each other recommendations on there? If any of the moderators or proven members (Evan, GT, David, Michelle, Mal, Alan, etc...) want a recommendation I will be happy to give one. I don't expect one in return but I would appreciate it.
Re: A new post record for me! - Speaking of posting records it looks like David is also about to set one - he's close to 1,500 total posts and becoming 3rd overall on the list of all time posters! Only 14 to go David!


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

What Aweber Can Do For Your Online Business

Self Employed Business Ideas

3 Competencies of Leadership

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.