When it comes to startup pitches, every VC has their pet peeves, and MicroVentures is no exception. For some VCs, it takes only one particular red flag to ruin any chance of a deal. For others, it’s the accumulation of red flags that sinks the ship. We’ve heard a lot of pitches in the last six years, and we’ve put together a list of five red flags you should avoid:
Predicting when you’ll IPO. Predicting when your company will exit is a major misstep in some investors’ eyes, because so many variables go into the timing of an exit – most of them beyond your control. Planning to make your IPO on the over-the-counter market via the pink sheets within the first few years of existence is an even bigger red flag. While this approach seems advantageous to startups because of lower costs and more relaxed regulation, it’s also prone to fraud and market manipulation. More importantly, it demonstrates a lack of faith in your business if you aren’t committed to doing what it takes to be listed on a major exchange when and if the time comes.
Asserting that you have no competition. Wouldn’t it be nice if you had no competition? Investors would be beating down your door. But the truth is that you do have competition, even if it’s indirect. When we started MicroVentures, we had “no competition” either. No other platforms were combining private equity investing with a crowdfunding model. But people were using related services – investment clubs, rewards-based crowdfunding sites, and other investment vehicles. Saying you have no competition is another way of saying that you don’t know what your customer base is up to, which is a huge red flag to potential VCs.
Outsourcing your technology. This red flag speaks less to your pitch and more to the strength of your business model. Whether you’re a hardware or software company, outsourcing your technology takes a lot of the potential value out of your business. Where is your intellectual property? Where is your competitive advantage? And what’s to keep other companies – or potential acquirers – from executing a similar idea and outsourcing the technology the same way you did? It’s unlikely that your business value lies in your marketing and business development teams, so be prepared to show potential investors exactly where your value proposition lies – and make sure it’s under your roof.
Asking for an NDA. Every book, article, and blog post on startup pitching has warned against asking for an NDA, but we still see this red flag from time to time. It’s understandable that you’re protective of your business idea, but it’s unrealistic to think we’ll sign an NDA. I can assure you, we aren’t in the business of stealing company ideas and selling them to the highest bidder. Your best bet is to put your company highlights in a short deck, put the more sensitive details in a long deck, and share information as your relationship with a potential VC grows. At the end of the day, it’s in your investors’ best interests to do right by you.
Relying on buzzwords. Is your startup a disruptive, cutting-edge game-changer? Is your demo video going viral? Are you growth-hacking your way to an intuitive big-data play? In short, are you crushing it? If your longtail is all about gamification, it may be time to reevaluate your pitch. Replace the fuzzy phrases with some clear language – and some hard numbers. If your idea really is a win-win, you won’t have to tell us. Your pitch may not sound as fun when the facts and the data are laid bare, but it’s more apt to get the message across and, more importantly, it’s more likely to resonate with the people who can fund your idea.
No pitch is going to be perfect. There may be gaps in your customer analysis, flawed assumptions in your projections, or room for improvement in your strategy. But by eliminating as many red flags as possible, you can help ensure that your pitch gets the hearing it deserves, improving the chances that you’ll get paired up with a VC that’s right for you.
Image credit: Joe Barbosa
