Transcription
There are some things you'll never want to say to investors. You're likely to think they're smart, but in the blink of an eye, you'll cost yourself a potential investment. Worse yet, you won't even know why the investor said no.
I've raised over $100 million dollars in venture capital and private equity funding, and I've helped entrepreneurs like you raise rounds of between fifty thousand dollars and a hundred and fifty million dollars. I don't want you to get blown out of the water with investors. That's why in today's video, I'll explain what are the 10 things you can never say to investors, why you can't say them, and what you should say instead. And you'll definitely want to hear the 10th thing because it's the one thing you can never do. I hope you like it.
Hi, I'm Brett. On my channel, I help early-stage startup CEOs like you raise money and grow your startup. So if this sounds like you, then hit the Subscribe button and the Bell so you get notified every time I release a new video.
Number one: Don't tell investors you're the next Uber. Investors have tells, in other words, they have signals and signs that they take from the entrepreneurs that they meet with, and they can see from meeting with an entrepreneur whether or not these things are right or wrong. And the minute you say, "We're the next Uber, we're the next Google, we're the next Facebook, or the next whatever," as an investor, you know that's very, very unlikely. And I also know that comparing yourself to Uber or Facebook or whomever, you know, tells me that you don't understand your business well enough because, you know what? Uber and Facebook, when they raise their money, they didn't say, "We're the next this or the next that." They were Uber. They were Facebook, and they had their own value proposition that was very unique. And guess what? You need the exact same thing if you're going to win. So stop with this thought process of, "We're the next Uber, we're the next Facebook, the next Google." Just throw it out of your mind. Burn it up. Just don't even think about that. Instead, talk about yourself. Talk about your company. What's unique about your company and why you're going to win.
Number two: Don't tell investors all you need is one percent market share to win. You'll likely lose the potential investment right there. If you say you only need one percent of the market, it sounds great in winning, doesn't it? It's a classic mistake. You show investors a big total available market. You say, "My goodness, see, look how big our revenue is with just one percent of the market. It's a no-brainer to invest in us." And you know what happens? There goes the investment. The reason is that the "we only need one percent" story is just not true. If you target a large market and assume you need one percent to win, you'll likely end up at zero percent. The reason is your product strategy, your marketing, and your sales strategy won't be specific enough. The answer is to niche down by reducing your served available market (SAM) to a smaller number so you have a meaningful market share of the market.
Number three: Don't tell investors what your exit strategy is, especially when you're raising early-stage funding. Again, this goes under the "you think you're being smart by saying we want to be acquired," but it's the wrong move. There are a couple of reasons why this is true. Number one, don't you think investors know what the possible exits for your startup are? This is what they do every single day, so they don't need your help. Number two, more importantly, you shouldn't be focused on an exit at such an early stage. And stating the obvious, even when asked, can hurt your chances of getting funded. It's a trap question because you're focused on the wrong things in your investors' eyes. So what is the right answer to the question of, "What is your exit strategy?" It's cliché, but just say this: "I'm focused on building a great company. The exit will take care of itself."
Number four: Don't tell investors you have any competition. I know your startup is different, right? But investors know better. They've seen hundreds of startups just like yours, and they know that every startup has competition, period. You know what the competition is? It's the old way of doing things. So instead of saying the lazy answer that you don't have any competition, become the expert on your competitive landscape. That's how you add value and get closer to getting an investment.
Number five: Don't tell investors, "These estimates are conservative." There are certain statements that are red flags to investors, and saying that any financial estimate or plan is conservative is at the top of that list. There are a couple of reasons for this. First, investors are used to startup CEOs making claims and not meeting the claims. Second, investors know that it's really hard to grow revenue. As the late Mary Cox, or chairman of the board, said to a prospective investor, "Most startups are horrible at forecasting revenue, and you'll find that we're no different." That's why you don't want to say your investors are conservative. Investors are smart, and they've been burned enough by startups over the years to know better. Instead, you want your estimates to be on the realistic, aggressive side. Why? Investors are likely going to reduce whatever you tell them because they're going to assume you're aiming too high. So being aggressive helps investors see your company in a more realistic light.
Number six: Don't tell investors you don't know how much money it will take for your startup to become cash flow positive. You should know your numbers, period, end of story. There are certain numbers and dates you should always know. What the answer is: Number one, you should know your breakeven point for revenue. Number two, you should know when you will get cash flow positive. Number three, you should know how much investment it's going to take to get to cash flow positive. Now, I know you're going to argue with me and say, "But we're just starting out, how can we possibly know this?" I get it, but you should take your best estimate based on your current knowledge of what you think is going to happen. Of course, you're going to be off, but that's not the point. However, you need to be thinking about these numbers from day one. After all, don't you think investors are going to make an educated guess about how much money you'll need? The more you know, the more you plan, the more you can help investors understand how your company works, the better your chance of getting an investment is.
Number seven: Don't tell investors they need to sign an NDA. "This is a direct quote: 'You need to sign an NDA,'" my co-founder John said to David, the investor we were presenting to. It was our second meeting with David, and John's comment took me totally by surprise. But David's response didn't take me by surprise. David looked at our VP of engineering, John, and said, "We can stop right there. I'm not signing an NDA." I sat there stone-faced while I waited for John to reply. I knew that if John didn't say he was okay with continuing, that we would be done for, and the investment would be gone. After what seemed like an hour, what was really less than a minute, John backed down, and the diligence meeting continued. Investors, as a rule, just don't sign NDAs. They would get sued right and left if they signed NDAs. Your goal when you're meeting with investors is to raise money, so I wouldn't hold back if I was you. It's the cost of doing business. If your information gets spread to a competitor, now the reality is they won't change what they're doing. Trust me on this one.
Number eight: Don't tell investors, "Our marketing plan is, 'Build it and they will come.'" The idea that customers are going to magically find your product or service sounds great, but it never, ever works, ever. Because it means you don't have a plan of how you're going to acquire customers. Investors expect a marketing plan, so develop a real plan, not a half-assed plan, but a real plan.
Number nine: Don't tell investors a joke unless you know it will land. I was in the audience when I heard the VP of a long-since forgotten startup make this joke/comment when he was introducing himself to the partnership of the VC fund where I was an entrepreneur in residence. He said, "I'm a reformed VC," and he thought the audience was going to laugh. The VP's joke landed like a lead balloon. Nobody laughed. You could hear a pin drop. The crazy thing is, I've seen other entrepreneurs make this exact same mistake with this exact same joke, and I made a similar mistake with a different joke when I was presenting to the partners at one of our investors, the notorious Donald Ventures. After I made the joke, you could hear a pin drop, and that's not the investor response you want, to put it mildly. Now, here's the deal: You are really rolling the dice when you make a joke. It's great when the joke lands, but a joke at the wrong time can kill the momentum you have with a potential investor. So if you're all in doubt, just don't make a joke. The other point is that you, as a CEO, should recognize from these first two points is that you have to prepare and rehearse with your co-founders before you present to any investor.
Number 10 on our list, the final one: Don't tell investors anything that isn't the truth. This is the one rule that you can't ever, ever break. You always want to be able to answer any questions investors have on the spot. However, you're sunk if you ever, ever lie because your credibility is on the line, and once you've lost it, you can never get it back. So if you don't know the answer to an investor question, simply say, "I don't know. I'll get back to you later today." Then get back to the investor ASAP.
If this content is resonating with you, then please hit the like button right now. Now, what did you learn from today's video? Please put your answer in the comments column below today's video, and if you have any questions, put them in the comments column too, and I'll be happy to answer them for you. Now, I have one more thing for you today. It's my free startup pitch deck template. It has all the slides that you need to develop an awesome pitch deck. All you need to get it is click the link below today's video, and it's yours for free. And for more great content, click on the video at the end of today's video. If you haven't already, then click the Subscribe button to get more great content for startup CEOs. I'm Brett at Brettjfox.com. Thanks for watching today. Take care. Bye.