5 Things You Should Never Say During A Venture Capital Pitch, According To 2 VC

5 Things You Should Never Say During A Venture Capital Pitch, According To 2 VC

5 Things You Should Never Say During A Venture Capital Pitch, According To 2 VC

Raising money for a startup is never easy, but getting investors to write you a check is especially brutal right now.

CNBC called the current situation “the toughest fundraising climate in over a decade,” noting that “the IPO market shutdown has caused a virtual freeze in pre-IPO cycles, and the dramatic contraction Multiples of software blocked private deal streams.” Although there are many companies that are still successful in fundraising, there is currently little to no room for error for founders.

That’s why two recent posts from VC come at a particularly auspicious time. Founder-turned-VC Jason Lemkin and early-career investor Hunter Walk’s middle pieces both cover the same basic ground — missteps they often hear founders make when pitching. You can check them both out for a complete overview, but here are some particularly common (and/or serious) mistakes you’ll want to avoid when presenting VCs.

1. “During my time at Google…” (if you only worked there as an intern)

It’s natural for founders to brag about themselves. But it’s just as natural for VCs to search Google to verify your claims. And when what you said doesn’t exactly match the truth (or even just seems like an oversell), your reputation will take an unnecessary and heavy hit.

Walk reports that he often comes across founders’ biographies peppered with logos of big names like Google and Harvard, “then I go to LinkedIn and see you have eight years of work experience, of which Google was a summer internship. in the operations team while you were in grad And Harvard was a two-week executive training course.

He understands the motivation for this type of CV inflation, but warns that the consequences can be serious: “I get it, you’re trying to write social proof for some credentials, hoping that at least that will get you in. But I do believe you do more harm than good when you put off your actual lived experiences for what you think I want to see At best you’ll get the investors you deserve (the bad ones who mostly care about status ), and at worst, you’re going to signal a lack of self-confidence, when we should be building mutual understanding and trust.”

2. “Oh, it’s not really clients, it’s trials.”

Lemkin cautions against misleading metrics that overestimate your product’s performance for similar reasons. “Be very careful in overdoing the measurements,” he warns. “Don’t count trials as customers. Don’t count deals that aren’t quite done yet…as done. Don’t mix 3 months of revenue into the ‘Quarterly MRR’ to make your revenue look bigger You probably get caught. And worse, maybe it wouldn’t have mattered to the VC if you had been honest and clear from the start.

3. “We hope to sell between $20 and $100 million in a few years to a BigCo.”

While a $100 million salary might sound fantastic to most people, it’s a small potato for VCs, which is why Lemkin and Walk caution against telling investors you hope for a relatively quick exit unless your business is already on an insane growth trajectory.

Among other drawbacks, tackling exit plans too early leads Walk to wonder if the entrepreneur is “looking [a] quick cash out rather than wanting a VC partner for a long-term venture.” Lemkin is even more outspoken about why you shouldn’t say things like the above phrase to VCs: “Although this could be the right strategy, the VCs probably won. I’m not making enough money with a result like this. You won’t look ambitious enough.”

4. “Our product wins because it costs less than the competition.”

For customers, offering a lower price could be a strong selling point. But according to Lemkin, that’s not the kind of competitive advantage VCs can get. “It almost never wins in SaaS, at least not big. It’s not a sustainable competitive advantage,” Lemkin warns of the founders, referring to his own software-as-a-service investment specialty. But VCs investing in other areas are also likely to wonder if another company will just show up and lower your price (or entice your customers with a richer offer).

5. “We need X dollars to last Y months.”

Lemkin and Walk approach the question of how much money you ask for versus how much money you burn from slightly different angles, but both VCs agree that you shouldn’t set the amount you want in terms of time. buy you before you hit a financial wall.

Walk notes that he often sees founders explicitly asking for enough money to keep the doors open for 18 to 24 months. Instead, he prefers the founders to explain “what you’re going to accomplish with my dollars as a title. Then back that up with how long you think it’ll take and why that capital is 100-125% of what you’ll have need to go.” In short, frame money as getting you to particular metrics, not a particular date.

Along the same lines, Lemkin warns founders not to say anything like, “We need a lot of money because our burn rate is pretty high.” The amount you spend should not determine the amount you request. “It’s not VC’s problem if your burn rate is too high,” he insists. Instead, like Walk, it insists you need to show how the money you’re asking for is going to get you to the kind of growth benchmarks that impress investors.

Of course, as Walk candidly admits, “there are a lot of different investor mindsets and preferences in what they fund,” so there’s no guarantee that these phrases will count against every company with every investor. But given how many pitches Lemkin and Walk have collectively heard, you should probably think long and hard before you say anything along those lines at your next pitch meeting.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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