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:
- 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.
- 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.
- 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.
- 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.
- 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: