The importance of a good pitch can’t be overemphasized when it comes to winning capital for your startup. Venture capitalists offer more than money for your startup’s next stage of growth. Angel investors have connections and invaluable experience to help steer your company to success, and impressing them with your pitch is crucial.
Crafting a perfect pitch is hard. An experienced investor has heard hundreds of pitches. There are some things they never want to hear again. Here are eight phrases you should never say to a VC – and what to say instead.
It’s great to pull in customers, but venture capitalists aren’t interested in philanthropy. They want to make money.
What to say instead: outline very clearly how you’re going to make money. If you’re free to users, there better be some solid income streams that guarantee you’ll be able to stay afloat. Better yet, monetize.
“I’m Steve Jobs’ neighbor’s nephew’s cousin.”
Unless relevant to the person you’re speaking with, name-dropping to impress smells as cheap as drugstore cologne.
What to say instead: Explain why your team is qualified to succeed. Starting with your biggest accomplishments, detail your relevant experience, including education if that applies. Keep it succinct. Present evidence supporting your competence. Like most humans, investors are more impressed with intelligent humility than ego.
“Our beta-stage project is valued at $20 million.”
Valuing a beta-stage project too highly can damage your credibility. In the VCs mind, the meeting is already over.
What to say instead: value your company as realistically as possible. Consider an 18-month time range, which gives enough time to close funding, invest capital, and position the company for stable growth. Calculate how much you’ll need for salaries, overhead, marketing, and administration. Subtract that from your current monthly revenue – the smallest amount of money you can reasonably count on making. That’s roughly how much money you need to raise. Then step into the investor’s shoes and decide what percentage of your company that’s worth. Keep it logical.
“These revenue projections are conservative numbers.”
This entrepreneur’s attempt at appearing retrained might set off a few BS meters. VCs have heard it many times.
What to say instead: if your numbers are projections, call them projections. If you are very confident in your projections, offer them, but try to avoid describing them as conservative. If your projections are based on actual sales, show how you arrived at your estimates. If your projection is pie in the sky – good luck.
“We just need 1% of the market to make millions.”
It’s pretty challenging to capture 1% of a large market and VCs know that, so show your potential investors how you intend to capture this often-invoked, rarely-seen market share.
What to say instead: here is our strategy for capturing X sales/customers/revenues. How many customers do you have now? What does your cash flow look like? How will the VC’s investment contribute to that growth?
“We don’t have any competition.”
You’ll sound awfully naive and ignorant of your business if you say you don’t have any competition.
What to say instead: emphasize your customer’s pain point, how the competition doesn’t address that pain point, and how your company does.
“Our projected Internal Rate of Return is…”
The projected Internal Rate of Return (IRR) is a number that VCs don’t want to hear. It’s a single number that brings together many unknowns that can change at any time.
What to say instead: give projected sales, expenses, and investments; provide cash flows; arrive at an honest valuatio. Let the investor decide what she thinks the rate of return will be.
What do VCs want to hear?
Investors want to know what problem you will solve for your customers, how you’re going to make money, why you and your team are the best people to deliver the solution to the problem, and how you will return their investment.
Investors are intelligent and dedicated. Show them you have these qualities, too. Be smart, humble and realistic. Most of all, try to be as transparent as possible. Gain their respect, and you’ll win their investments.
Vincent, a serial entrepreneur, founded a virtual sports betting startup before co-founding FlashFunders. He has consulted for several tech startups, as well as frontier market firm Osprey Global Solutions, working on global development efforts in Europe, North Africa and the Middle East. He started his career leading business development at FindTheBest and holds Series 7 and 63 securities licenses.