If you're developing a startup, there are some subtle things in your pitch decks that might tell VCs that you're inexperienced. These red flags might be flying right under your nose. I'm going to share some examples of these red flags so you can avoid them when fundraising for your startup.
Red Flags Investors Look For in Startup Pitches
Omit information about your management experience and skills.
Investors look not only at ideas but also at the people behind them. The investors are looking to see what prior experience the founders and team members have in building a startup, and what knowledge they have regarding the relevant solution domain. If you want to be taken seriously as a founder, you need to disclose your relevant experience and knowledge. If you don't have any prior startup experience, consider joining an accelerator program or working with a mentor who can help guide you through building your startup.
Buzzwords
When pitching your startup to investors, it's important to be brief, clear, and precise. When you're building your pitch deck, keep it simple and try to avoid using more than two or three slides. Make sure that you speak clearly about your company's growth and projections. Remember to avoid using unnecessary words and phrases, such as industry jargon or buzzwords. It's best not to use complex industry terms when speaking with potential investors. It might hurt your credibility as a serious entrepreneur.
Don't be a sheep and repeat the same old jargon. Present your business in a clear, concise, and compelling way. The best entrepreneurs don't come across as too eager to impress. They have their own merits to rely on.
No Momentum
Another important thing to keep in mind when pitching your startup to investors is to be able to show proof of momentum achieved. Even if you've had no success yet with fundraising, you should still be able to demonstrate that you've been working toward that goal. Revenue is not the only way to establish momentum; other methods include:
- Significant user numbers
- Positive reviews
- Repeat users/consumers
- Focus on customer acquisition.
- Partnering with well-known brands or prominent influencers
- A minimum viable product (MVP)
Claims of no competitors or hundreds of competitors
Some startup founders believe that having no competitors in their market will impress investors. This is a big mistake. Investors who have been around for a while know that most worthwhile ventures face some competition.
Investors expect startup founders to have a clear understanding of their company's financial performance, compared to industry standards. If you're looking to show off your startup's individuality, make a list of its top competitors and the ways it differs from each. When you pitch your startup to an investor, be prepared to discuss how your company is different from its competitors.
Over-promising
It's a good idea for startups seeking venture capital funding to promise less than they can deliver. Venture capitalists spend their days listening to pitches from startup founders. They will know which goals are realistic and which ones are not. Entrepreneurs should set realistic goals and objectives instead of promising more than they can deliver. Founders need to be able to see the path to success and know how to manage their startup's performance. By taking the time to set smart goals and develop an actionable plan to reach those goals, startup founders can impress potential investors with their dedication and commitment.
Generalized Target Market and Industry
Before pitching to an investor, it's important to know in-depth information about your target market and industry. The more you know about your audience and industry, the better positioned you'll be to create a product that's a perfect fit for those groups. To identify your target market and optimize your product or service, create buyer personas that describe as specifically as possible the characteristics of your ideal customers. To create buyer personas, you can use a mix of research, surveys, and interviews.
High Salaries
It's a common mistake among startup founders to demand high salaries when pitching their ideas to investors. While it may seem like a good idea to ask for a lot of money upfront, it's a red flag.
Getting the product-market fit right usually takes about a year of research, prototyping, and financing. Your startup will need money to cover sales, marketing, and hiring costs. Investors usually prefer to partner with founders who reinvest most of their startup's revenue into business development.
Some investors will refuse to invest in startups that pay high salaries to their founders. If your startup is still in the early stages of development and needs money for sales and marketing purposes, it's better to ask for a smaller salary at first and increase it once you've gotten things off the ground.
If you want to be taken seriously by the investor community, you must stick to the facts. If you misread or misrepresent data, you are opening yourself up to a world of failure and rejection. There is little room for dishonesty when it comes to funding so stay on the up and up or stay clear.
