Turning Off Financial Investors

Quick Summary: Due to the volume of requests, investors focus on quickly saying “no” for the smallest reasons.

Abstract:

It is easy for an entrepreneur to make a generalized statement about their business that can instantly turn off a potential investor.  Most of the statements reflect a lack of reality in terms of market timing, penetration, and competition.  These statements are understandable since most entrepreneurs are visionaries, focused on their unimpeded view of where they are, and convinced of what they will attain.

Blog for The Entrepreneurial Hour Posted 06/21/2021

The full title of this blog should be The Fastest Way to Turn Off Financial Investors.  All of us, at one time on another has said: “Oh no, that is not what I meant to say.”  Unfortunately, it is hard for any of us to “unhear” something once it is said.  For financial investors, who are overwhelmed with funding requests, they must focus on eliminating “opportunities” as quickly as possible.  A future blog will focus on this issue.  Its title will be “Getting to No Before Take the Time to Get to Know.”  It may seem unfair, but seldom does a well-meaning entrepreneur get a second chance to correct an innocent, generally naïve statement.

Rick Burnes, Founder of the highly successful Charles River Ventures firm, used to talk about his cockroach theory when listening to company presentations.  “If you see one cockroach on the floor, you can bet that there will be thousands in the walls.”  With their haste to make a great impression, entrepreneurs, caught up in the moment, can make one “cockroach” statement that immediately destroys their credibility.  In other cases, the entrepreneurs, due to their lack of reality, may actually believe those statements that, to an experienced investor, simply are not accurate or reasonable.

Another blog in this series will focus on The Three Rs for Investors.  They are risk, reward, and relationships.  One simple misstatement can severely impact risk and the relationship that are the primary focus of investors. Once they become comfortable with those two aspects, they can focus on the reward potential.  Note the order.  Unfortunately, most entrepreneurs focus of the “great reward” that is awaiting them.

Over the years, I have heard dozens of statements – believed to be accurate by entrepreneurs but are highly unlikely.  Investors may “jump” on one of these statements or, most likely be turned off to whatever is said from that point on.  They may begin to focus on their phones, read other material, or even leave the room.  There is usually little time or opportunity for recovery.  I have created a list of these statements and the likely, said, or unsaid responses of investors.  I have included information on how to access the list below.  From the list, I have extracted ten, all too common, statements.

 

Entrepreneur Comments

An Investor's Quick Response

I have this idea and know exactly what to do; all I need is the money to do it.

There is a long distance between what is in your head and a prospect’s wallet.  Come back when you have real customers.

Being first to market is our major competitive edge.

Google, Microsoft, Facebook, and virtually every other successful company were not first to market.  Fast followers will learn from your mistakes and shortcomings.

The market is so large that we only need one or two percent market penetration to be successful.

No one wants to be a one-percenter. It shows that there is no general market consensus about you.

We have no competition.

No competition usually means no market, or you are incredibly naïve.  Everyone’s major competitor is for customer dollars.

The existing, large incumbents will have a hard time duplicating what we do.

If they feel threatened, they can move an army or give away what you are selling -- ask Netscape.

To serve the largest portion of the market, we intend to offer a superset of all our competitors' features.

Attempting to be everything to everyone usually results in never getting an offering out or having it too complex to appeal to anyone. Focus on one market.

If competitors try to do what we do, we will sue them for patent infringement.

It costs hundreds of thousands to defend a patent and takes years.  Less than half infringement suits hold up.

We are projecting sixty percent or higher market penetration within two years.

Hockey sticks belong on the ice, not in new company financial projections.  Overnight success usually takes ten years.

To protect ourselves, we expect you to sign an NDA before you begin the due diligence process.

This is nonsense.  We never sign them, never. Have you ever heard of a situation in which someone sued and won over an NDA?

We intend to use part of the new capital raise to pay back salaries and loans to employees and other groups.

We want our money to be used for the future and not to compensate others for the past.

 

Another comment that I hear far too often is the response an entrepreneur makes after being turned down by an investor.  They say: “They just didn’t get it.”  When I hear this, I respond: “If they didn’t get it, you didn’t give it.”  It is very hard to unscramble an egg!  Be careful!

The above ten statements were taken from article 3.030314 of the CxO-Atlas website.  It is titled: “Sour Notes to an Investor’s Ears.”  The preceding article “Music to an Investor’s Ears” suggests some of the almost guaranteed statements that can help an entrepreneur get past the investor “No” filter.  How many on them can you say?

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About The Entrepreneurial Hour

The Entrepreneurial Hour is a “pay it forward” organization focused on helping entrepreneurs and startups succeed.  The Entrepreneurial Hour holds weekly meetings where one founder/startup presents to a group of seasoned business leaders who offer friendly but candid advice.  Meetings are held from 8:00AM to 9:00AM EST every Wednesday.  Visit the website:  www.theentrepreneurialhour.com to learn more.

About Tom Berger

Tom spent 22 years with public companies including 17 years at Motorola. He then founded or ran seven technology startups with exits over $260M.  He now mentors entrepreneurs and startups. He has a free website www.CxO-Altas.com that contains almost 700 articles, presentations, and tools.

About www.CxO-Atlas.com Website

The website is a free repository for over 700 articles, presentations and tools.  The contents is targeted toward entrepreneurs, startups, and senior managers.  The 650 articles average about 850 words and each can be read in about three minutes.  Volume 3 is specifically targeted toward entrepreneurs.

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Article Number : 9.030101   

A Handy Reference Guide for Executives and Managers at All Levels.

9 Volumes 42 Chapters ~689 Articles

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