Top 5 Pet Peeves of Venture Capitalists

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Venture Capitalists can be a tough group to please. Because they hear hundreds of pitches every year, VC learn to sort the best from the B.S.

I had a chance to discuss this topic with Mr. Ed Goodman, General Partner and Co-Founder of Milestone Venture Partners in New York City.  During his VC career, Ed has invested in over 100 companies including Apple Computer and Staples office supply stores.  He shared with me the five worst rookie mistakes that entrepreneurs make when pitching to venture capital funds.  See if you recognize yourself in any of these:

  1. Poor Communication. Getting VCs interested in your opportunity requires short, concise descriptions and well-written documents. Hone your executive summary and verbal pitch until it is jargon-free and crystal clear.
  2. Overconfidence. Entrepreneurs should be a confident lot. But every founder needs to know his limits and do what’s best for the business. No one expects you to do it alone, of course, so instead of pretending to be Superman, pitch a team approach.  No team is ever 100% either, so just be ready to identify gaps in your executive team before you talk turkey with a VC.
  3. Exaggeration. VCs love to invest in big ideas with big markets, but entrepreneurs that exaggerate their opportunity are highlighting both their ignorance and their arrogance. Rather than brag about a giant market, clearly identify the subset of customers that are most likely to buy from you.
  4. Valuation Everybody thinks their idea is worth $20 million. Sadly, its not. To get into a VC’s checkbook, you’ve got to have realistic expectations about ownership and stock value. If you are truly successful, it really won’t matter whether your initial valuation was $3 million or $5 million. But which number you select at the beginning can tell them a lot about how tuned in you really are.
  5. Ego. It’s hard to believe, but many entrepreneurs will walk away from a $5 million investment offer because they think they can do better. Most live to regret it. Raising money is hard work – don’t make it harder by letting your ego get in the way of progress. Take the money and run!

Goodman says all of these mistakes result from thinking too much about your self and not enough about the company as a whole.

And then he gave me a bonus rule: Actions speak louder than words.

“It’s really about execution,” he says. “If you execute on your plan, people will want to put in more money and the company will continue to grow. If you don’t execute, nothing else really matters.”

To be sure, there are plenty of wrong ways to attract venture capital.  Make it easier on yourself by learning from others and practicing the basics.  Knowing what is expected from you will help insure that you don’t strike out before the first pitch.

Dedicated to your (VC-funded) profits:

David Worrell

PS: Want to fix your Venture Capital (VC) pitch?  Read “Say This Not That” then contact me for a free review of your pitch. No obligation, no sales pitch.  Just me, you and your PowerPoint.

3 Comments
  1. Very interesting and informative post! Helped me clear up a few things I was unsure about

  2. Mr. Worrell,

    Thank you for this informative article, I so needed this information. I have a business and need investor(s)to grow my business. I had a meeting with an investor today and he referred your site to me, this is the best information for me to proceed. It gives me much needed insight into the VC world. I’m used to working with Business Plans but he told me that Power Points have replaced Business Plans, is this true? If so I have to learn how to develop one. Thanks for your willingness to share this valuable information!

    • Thanks Jennifer:

      Glad we could help. There are a lot of articles out here about dealing with investors — you might search on the term “Angel Investor” rather than “VC”. VC, or Venture Capitalists tend to be professional, career investors dealing with hundreds of millions of dollars, and looking primarily for technology companies… This puts them in a very different mind-set than an “Angel Investor” who might be willing to invest $25,000 to $100,000 into a small local business. (I’m guessing that your candy business is in the second category.)

      One key for dealing with Angels is finding the right personality. It’s likely to be a long (and sometimes tense) relationship, so best to work with someone who you like and respect.

      OK — as for your question. I do not believe that a Power Point can replace a thorough business plan. But I also know that a thorough business plan is not always needed. In my experience, most companies do BOTH. Writing a comprehensive business plan (20-40 pages) forces you to think through a LOT of issues. Once you’ve done that, you can simplify the concepts and the plan and create a short PowerPoint presentation (15-20 slides).

      The PPT is a great way to communicate with investors, and along with an “EXECUTIVE SUMMARY”, is usually the first thing that you present to a new investor. I mean really, who wants to READ a 40 page business plan? Ha! But we don’t write plans so that everyone will read them…. we write them for OURSELVES…. to know that we have looked at all the risks and opportunities available to us, and to feel confident that we have crafted a strategy that will lead to success. And THEN we can tell people about it with a short PPT or summary.

      Make sense? Don’t forget that I sell a great business plan template on this site. And if you buy it let me know — I’ll throw in a PPT example too!

      Best
      David

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