No Investor Wants to Hear...
It’s not unusual for entrepreneurs who have developed technology—or are building their startups around it—to have little experience in the business world. They often begin their journeys thinking like techies, not like investors: they love their technology, but they struggle to explain how they’ll build a successful business around it.
Following are some things you may be tempted to say to potential investors.
Understand, please: I’m not talking about the cosmetics of your pitch. What I’m saying is that if you’re thinking these are things you want to say, it’s likely that you don’t understand what investors look for, what you should be doing to build your company, or what’s important in creating success.
If you’re tempted to say these things, you have serious problems, and you need to focus less on the wonderfulness of your technology and more on building a realistic plan to create a good company.
And no, these are not made up. I’ve heard every one of these from would-be entrepreneurs pitching their ventures.
Thing 1:
“It took a lot of effort, but we have a detailed five-year financial plan we can share with you.”
Anyone who works with or invests in startups knows the chances of your knowing today what your startup will look like in five years are vanishingly small. It’s all but certain you’ll pivot from your planned market or products at least once as you discover what customers really want.
Sometimes naïve investors ask for five-year plans. If you do have to prepare one, make it very simple and high-level. No experienced investor wants to think of you as someone spending time on spreadsheets rather than talking with potential customers.
Thing 2:
“We’re looking for funding to support our development of the product.”
What your potential investor is hearing:
We’re still in the lab.
We want the investor to take all the risk.
We’re asking for both market risk and technology risk.
They’re also hearing that you may not realize something fundamental: investors are looking at many other companies, some of which already have products ready for market—and maybe even some sales.
Thing 3:
“We’ll sell to [schools / hospitals / parents / insurance companies / etc.].”
What’s wrong with saying this? More importantly, what’s wrong with the thinking behind it?
A hospital or a school is just a building. People in those buildings, with job titles, budgets, urgent needs, and tight schedules, buy things. Buildings don’t.
Parents? Yes, there are a lot of them. Will they all buy what you’re selling? Of course not.
So you’ve said you only need 1% of all parents. But:
How will you find the right 1%?
How will you reach them at a cost of sales that allows you to make a profit?
And “insurance companies” (or automobile manufacturers, or big pharma) are gigantic, rigid bureaucracies. Many people can say no. Very few can say yes. Have you done your homework? It appears that you haven’t. You can read more about paths to market here.
Thing 4:
“Let me do a demo for you.”
Yes, you love your technology. So why wouldn’t an investor want to see it when you pitch?
Because demos come later, during due diligence. That’s the deep dive investors take after you’ve convinced them your venture might be worth investing in.
In your initial pitch, investors want to see:
Your team
A slide on your product
Your market understanding (and proof)
Your IP strategy
Your sales and profit plan
They assume your technology works. They want to know whether you can build a business that works.
The Takeaway
If you’re serious about building a company and want investors to believe you can do it, focus on the business. Show that you’re not only terrific at technical work, but also an equally capable executive who knows what needs to happen and will make it happen.
