Please God help me! Don’t let me see any more startups asking for funding before they have the most rudimentary startup aspects covered every which way to Sunday. You think I’m joking?
Imagine starting a pitch about the market size by saying, ”There are four billion people in the world with computers and each of them will need our software.” I swear, I have heard that numerous times.
Have you heard the Shark Tank guys glare at the pitchers and ask what planet they came from? I had to make a list because some startup “founders” seem like they should belong on alien planets. There are key points said, implied or shown that will drive VCs to quickly close their briefcases and leave the boardroom. They are, in no order of daftness:
- The evaluation was determined on a roulette wheel just before the meeting. I realize that a young founder faced with possible investors may be inclined to see a red sports car or a fancy new office in their future but asking for a 30x valuation on a retail startup is absurd – please plug in your own crazy valuation stories here, we’ve all heard them!
- They still have full time jobs. Come on people! Entrepreneurs risk everything for the sake of the startup. This is unacceptable. Take the risk like the rest of us and prove your passion for your startup.
- You go to the website and after viewing all the pages have no idea what they are selling. I call it ‘nerd speak’ and I think a lot of founders think we can read minds. It’s almost like they are so caught up in their importance and egos that they can’t express it to the rest of us.
- The founder reads the slide deck word for word and each slide has paragraphs of information. You then realize the founder’s 5-year-old nephew designed it. Keep it simple and factual!
- They go on and on about passion but it is really their way of saying they have no experience and think passion will make up for it.
- There is no competition analysis because they don’t really believe they have any competitors. Many founders actually believe this one. They think they have come up with the greatest thing since sliced bread.
- As the Venture Capitalist, you ask about scalability and they look longingly at each other to answer the question because they have no idea what you are talking about.
- Their understanding of financials, taxes and forecasts is woefully limited—like certain newly elected members of Congress.
- Their valuation is predicated on an idea without a minimal viable product (MVP). Look, we all have great ideas one time or another. Are they feasible, logical, needed or wanted? Maybe they are but an idea is useless without execution, or even a plan of execution. Don’t waste our time!
- There’s no business plan. I know the trend is to go Lean Canvas and heaven knows I think the world of Eric Ries, but nothing defines a proposal to investors like a well structured, thoughtful business plan with real financial projection, goals and actionable items.
- They got to the boardroom by bootstrapping their company with their college student loans. This could be why they only have an idea not a MVP.
- Their niche is too small to support the business. Setting up a production line to create fountain pen nibs might be a stretch but I have seen it all.
- They have a one SKU/product company. It’s a product not a company!
- Their management team is comprised of the founder’s high school buddies or worse his football team scrimmage line.
- They don’t know who is in the room with them. The VC’s don’t waste time they conduct due diligence. The founder and his team need to know whom they are pitching.
- Overestimating the market size. Like the example of the guy with four billion possible buyers of the software this is an almost always sign they have no clue. For some odd reason, founders like to say “if we can only capture 1% of the market” we’ll all be rich. Seriously guys, it really doesn’t work that way. You may love your product but don’t assume the world will beat a path to your business. Arrogance is not acceptable in this situation.
- They have no idea what their exit strategy is, or needs to be, for a liquidity event so the investors and everyone can be paid.
… And the worst one for me is when they tell you confidently they are in “pre-revenue” or “stealth” mode. Seriously, if you have no sales at all, you’re not interesting to most of the VC’s I know.
Some of these red flag scenarios may be tongue in cheek but are serious flaws that show up time and time again. Most founders with those issues wouldn’t get past my due diligence process. Most VCs I know, and work with, want startups vetted before they sit down to talk money. Don’t burn the investor bridges until you are ready to pitch the correct way.
Gary is CEO of Bizzo Management Group Inc. in Vancouver. He has mentored over 1000 business leaders, investors and entrepreneurs. London-based Richtopia placed Bizzo on the Top 100 Global Influencers in the World for 2018