5 Things You Should Never Say to a Venture Capitalist
Entrepreneurs launching a startup have a to-do list as long as the Empire State Building -- bringing their product or service to market, branding, hiring, etc. But it will all be for naught if they don't get funding for their idea. One of the most common ways to raise money is by presenting to venture capital firms looking to invest.
Whether you have a 30-minute presentation scheduled or an impromptu 30-second elevator pitch to make your case, you don't want to screw it up. Here are five things you should never ever say to a venture capitalist -- unless, of course, you don't really want their money:
1. "This product will sell itself."
No product or service is capable of this feat, especially in today's overcrowded market. The concept of venture capital is pretty simple: Venture capitalists want to invest in companies that will make them money. "VCs are just as interested in how you are going to build a customer base as they are about your development and production process," says Jeff Kear, owner of Planning Pod Event Management Software. "Telling them that the product will sell itself is admitting that you have no idea how to market and sell your product."
2. "Our company has little or no competition."
Wrong. You do. Everyone has someone nipping at their heels, and every VC firm knows this. In fact, that venture capitalist with whom you are speaking likely heard a pitch for a similar idea yesterday. So, saying this makes investors think you're either ignorant or arrogant, both of which are red flags. "If you want to woo a VC, always be humble and try to figure out that specific advantage that you can achieve that will put them ahead of the rest if they invest in you," suggests Ian Aronovich, co-founder and CEO of GovernmentAuctions.org. "And you cannot do that without recognizing your competition."
3. "People are copying our product everyday, which makes us proud."
On the surface, this seems like the perfect response to the obvious question about copycats. But it's really not. In fact, it can do more harm than good. "You are basically telling an investor that a) your product doesn't have anything proprietary, and b) you have created competitors who can take over the market before you do," warns Gozde Aksay, founder of Salary Fairy, a site that gives professionals an idea of what they can earn for their experience and qualifications. Instead, Aksay suggests you explain what differentiates you from those copycats and how far along you are in production. A quick mention, she adds, about your motivation and passion doesn't hurt either.
4. "We are getting a lot of traction."
This is another phrase that seems like a good idea but is not. Traction is hard to define, says Anthony Alfidi, CEO of Alfidi Capital. "Traction means a lot of different things to startups with no revenue: getting strategic partners, getting favorable press, getting website visitors or app downloads," adds Alfidi. "It only means one thing to VCs: Sales! Revenue is the ultimate traction."
5. "Show me the money."
Money, indeed, will do the talking for you. If you have revenue or a clear path to it, you are more likely to get people to invest. Regardless, you should not ask for funding outright from a VC firm. "'If you want money, ask for advice, and if you want advice, ask for money,' is an old maxim in the VC world," says Aronovich. "I feel that this holds true." In other words, seek consultation instead of coinage. To win the heart (not to mention the cash) of a VC firm, do your homework, be honest, and think before you speak. Always.