It's hard for me to believe, but I've been in the venture business for almost 10 years. Time flies! It seems like only yesterday I was running up my credit card debt to fund the operating expenses of my own startups. Now I spend most of my time hearing pitches from similarly committed entrepreneurs who see venture investment as a critical step on the road to entrepreneurial success.
In a typical week, I'll hear pitches from between 5 and 10 companies which means I hear 250 - 500 pitches a year. Over the nearly 10 years since I made the switch to the dark side, I've heard between 2500 - 5000 pitches. That's a lot!
Over that time period, I've developed a strong set of likes and dislikes. The biggest red-flags for me usually have more to do with style and delivery than the content of the pitch. But then, since the majority of the investment decision for me is based on the people, the style and delivery issues are very clear windows into the most important content of all - the entrepreneur.
As an important part of understanding that content, one of the most important things I like to do at the beginning of the pitch, is to have the team introduce themselves. You'd be amazed at what sort of insight can be gleaned from that simple exercise. A lot of my red-flags pop up immediately during that part of the pitch.
So without further ado, here are some of the biggest red-flags I see frequently in startup-pitches:
- The overlord - During the intro, I like to hear from each of the team members in their own words, and I'm pretty upfront about that. Despite that, there are still entrepreneur/CEOs who insist on being the only speakers and reviewing the bios of everyone who is there. If the people in the room are important enough to bring with you, then they should be important enough for us to hear from them.
- Overselling - this can happen throughout the pitch. Don't tell me that the glass is full when upon any deeper scrutiny, it's obviously not even close. Be open and honest. You need to be equally open and honest about the challenges or threats as you are about the opportunity. We want people who we can trust to tell us the bad as well as the good.
- The submissive dog (AKA the underseller) - this is a weird one, and it still surprises me when it happens, but from time to time, it does. This is when the entrepreneur tells me that with me and my involvement, they will be a success. The implication is that without it, they won't. I'm investing in you, not me.
- Self-importance - This is a tricky one, because good entrepreneurs need to be confident and self-assured, but there is a point when it crosses the line to arrogance or cockiness. You don't have to tell me how smart you are, that should be obvious... or not.
- Name-dropping - not to be confused with references to your angel investors or people who are somehow legitimately helping the company out. Everyone knows a name-dropper, and it is just as off-putting in a venture-pitch as it is at a cocktail party. I'm interested in the deal because of the people that are in the company, not the people they know. This tends to go hand-in-hand with #4 above and instead of exuding confidence, combined they are the clearest possible indicators of someone with low self-confidence.
- Over-complicating - One of my partners has always said that the difference between a person who is an "A" and a "B", is that an "A" can explain something that is very complex in a very simple way. All we want are A's. So if I walk out of the pitch confused by the complexity, I can only assume your customers will be just as confused.
- Lack of focus - Focus is one of the most important things for a startup. More companies die of indigestion than of starvation. One of the hallmarks of a great idea is that there are often more opportunities to expand that idea than there are resources to pursue those opportunities. Pick one of the best opportunities and focus on it. Don’t worry, I know your start-up is going to change business strategies at least two or three times or more as you grow and learn from your customers what they really want. What I want is to see that you know how to focus.
- Defensiveness - venture guys ask lots of questions. Sometimes those questions can be rather pointed and may imply a healthy dose of skepticism over what is being presented. The LAST thing you should do in a situation like this is to be defensive. That merely tells me you’re too insecure to listen to differing opinions. That’s not a winning characteristic for the chief decision-maker of a company. And by the way, there is a clear difference between someone who is passionately presenting their position and someone who is being defensive.