your e-commerce company has reached the stage at which there's an appointment
with a venture capital firm or two on the corporate calendar, you might want
to know what the money folks really don't
want to hear.
Sure, you know what you want to say. But it turns out there are some things
you could say in your written proposals or oral presentations that are almost
guaranteed to shoot your request down in flames.
"Fatal errors" they are called in a new brochure entitled
"The Top 10 Mistakes Entrepreneurs Make When Asking VCs For Money."
The brochure was put together by BeaconVentureCapital.com
(BVC), a Web-based private equity firm, and the National
Consortium of Entrepreneurship Centers (NCEC), a non-profit
organization representing more than 60 entrepreneurship centers at leading
business schools in the U.S.
"It amazes me how many people we meet today who have not thought
through what they are going to say when asking for funds," said
BeaconVentureCapital.com Managing Director John Groth. "With most VCs now
proceeding in an extremely cautious manner with their money, it is
increasingly important to avoid these easily correctable pitfalls."
So herewith, what NOT to do or say:
- Dissing the Competition -- Perhaps the most frequently heard of
ill-advised statements is that the entrepreneur faces "little or no
competition." Since there is very little that is truly new, VCs begin
with the premise that you have competition and the only question is
whether or not you have some kind of competitive advantage that gives you
a good shot at making it. In short, failing to show respect for your
competition is a serious mistake when wooing a VC.
- Invoking the 1 percent Non-Solution -- Way too many entrepreneurs
try to point out that "all we have to do is capture 1 percent of the
market" in order to be a success. The problem is that too many
entrepreneurs foolishly assume that such a small milestone is easy to
achieve. In truth, the vast majority of companies never gain 1 percent or
more of their total marketplace.
- Bragging About a Vapor Team -- So, you're planning to bring Colin
Powell and Chuck Yeager on board in the next six months? Don't bother
telling that to a venture capitalist. Your current team is your team for
the purposes of lining up financial backing.
- It's the Questions, Dummy -- The rule of thumb for making
presentations to VCs is to stay focused and be ready to cover all the
bases. Operate on the following assumption: If you can anticipate the
question from the VC, then you should have a concise answer prepared
beforehand. You should come to the table with all relevant details about
financials, the management team, definition of the product or service, the
market, the perceived need and how you will meet it.
- The Gee-Whiz Mistake -- Too many entrepreneurs, particularly in
the tech world, get caught up in the "gee whiz" aspect of their
product or service and fail to clearly define the nature and size of their
market. Too often, a VC will find that almost all of the entrepreneur's
brainpower has been concentrated on producing his or her new widget, while
the marketing side of the equation goes wanting. Weak targeting is a
sure-fire way to get rejected by a venture capitalist.
- Like, Don't Tell Lies -- Misleading a VC is not only an error ...
it is one that is likely to be exposed very quickly. A venture capitalist
is like a professional poker player in that he or she develops a highly
tuned ability to detect when someone is bluffing. Always disclose your
current status. Prospective investors never like to find out during the
due-diligence process that a company has two times more accounts payables
- Claiming a Patent Lock -- Perhaps more so than most investors,
venture capitalists know that there are few, if any, "sure
thing" investments in life. That is why claims of invincibility or
inevitable success as the result of an existing or pending patent are
unlikely to carry any weight with a VC. Even the best patented process or
product is no guarantee of the success of an enterprise, which hinges on
dozens of individual factors.
- Mom Was Right, Neatness Counts -- All too often business plans
reach the desks of decision makers with no attention to grammar, spelling
and just plain, old-fashioned neatness. Your written proposal is the first
impression you make on a VC. Do everyone a favor and get someone to
proofread the final proposal.
- Talk Until You're Blue in the Face -- Too many entrepreneurs
making presentations to VC spend way too much time talking and virtually
no time listening to the VC's questions. This frequently fatal error
arises most often when the venture capitalist asks a question and the
responding entrepreneur concentrates on trying to head off what he or she
thinks is the next question, rather than simply answering the one at hand.
- Tout Your "Conservative" Numbers -- Make sure that what
you are projecting is realistic and based on some kind of defendable data.
Don't try and reassure the VC by claiming that your estimates and
projections are "conservative." It is safe to assume that the
venture capitalist has heard this hollow reassurance dozens of times
and stopped listening some time ago.
Bonus Tip -- After the presentation, don't try to hurry along the
decision of a VC. The rules here are a little like dating: If you call every
five minutes, you'll end up leaving a bad impression.
"Perhaps the biggest mistake that a growing business can make is to
put forth a poorly constructed presentation to a VC," said Donald F.
Kuratko, Stoops Distinguished Professor of Business and founding director of
the Entrepreneurship Program at the College of Business, Ball State
University. "Though VCs may be able to spot a diamond in the rough when
it comes to a proposal for funds, it's never a good idea to make the person
who you are asking for money wade through typos, stammering, upside-down
slides and other troubling signs of inattention to detail."
Bethesda, MD-based BeaconVentureCapital.com serves the professional
investor community by using the Internet to bring them the private equity
offerings of developing companies.
The National Consortium of Entrepreneurship Centers is a non-profit
organization representing more than 60 entrepreneurship centers at college and
university business schools in the United States. It has financial support
from the Kauffman Foundation, Nasdaq and BeaconVentureCapital.com.