If you planning to present your venture to an investor, below are the 49 most recurring mistakes. The article is divided into two categories, "mistakes in the pitch deck," and "mistakes during the pitch."
MISTAKES IN THE PITCH DECK
UNREALISTIC GROWTH PROJECTIONS
Founders and investors know that financial projections of early-stage companies do not make sense. There are too many variables, unknowns and future events that make the projection inaccurate 99% of the time. That said, a projection helps an investor understand how you think about your business and what are the assumptions that need to hold true for the proposed venture to grow. If you project a revenue growth that is completely out of sync with other startups in the industry, it brings out your lack of understanding of the space.
It is important to understand the difference between the Market Size and the Total Addressable Market. Investors are reasonably aware of whether a market is large enough or not. If you present a TAM that is unreasonable for the industry, it can boomerang and showcase your lack of experience.
TOP-DOWN APPROACH TO MARKET SIZING
Assume that, as per Nielsen, ‘delivering breakfast to the office’ has a market size of $100 MM. While Nielsen could be correct in their calculation, you cannot use this as the only measure of market size.
Bottoms up is a better approach to paint the picture of sizable opportunity. “If there are 1 million office-goers in the city and you can attract 5% of them, you will profit $1,000 a month and if you deliver breakfast 20 days a month, that is $20,000.” This bottom-up approach to market sizing is what makes the cut and shows the true potential of your market.
A LOT OF LOGOS WITH NO REVENUE
Having Fortune 500 companies listed as customers, makes investors assume that the company is generating meaningful revenue. But if the financials are not representative of the claims, it can mean either the company’s definition of ‘customer’ is very loose and includes non-paying ‘customers,’ or the company can’t charge enough for the product. Both options are equally bad.
FAKE PRECISION FOR EARLY STAGE COMPANIES
As an early-stage company, please admit if you don’t have enough data to measure metrics like CAC, LTV, % Churn. Don’t try to convince investors with amazing metrics, for example, 20X CAC to LTV ratio.
WRITING THE EXPECTED VALUATION
It’s OK to quote your expected valuation in a meeting. It’s not OK to write the same in your deck. It is naïve and takes away your leverage in the negotiation. That is, don't write something akin to "raising $4mn at $16mn pre."
CALCULATING INVESTORS’ EXPECTED RETURNS
It’s almost impossible for you & investors to calculate the ROI the investor can expect so early in the life of a startup. Quoting a small number would turn off the investors and a huge number will make them ask more questions about your assumptions. This is definitely not where you should be spending your time.
Your job as an entrepreneur is to build a huge company. That is what you should be obsessively focussed on — and that's what you should present.
Saying that you have no competition generally means either you have not done your homework or you are going after a tiny market that doesn’t matter. Odds are you have not done a good assessment of the competition in your industry. Think strategically and broaden your horizon.
‘HARD-CODED’ FINANCIALS IN YOUR PRESENTATION
Hard coding numbers in your presentation is a rookie mistake. Linking your sheets with formulae and assumptions allows investors to play with various financial inputs to see how your business model will survive in changing conditions. Don't do this.
TEAM SLIDE IS SIMPLY A BRIEF BIO
This is one of the key slides of your presentation. Investors are bidding for your team and their biggest worry is if you would be able to execute. Make sure you talk about chemistry, domain experience, past achievements. Mention the complementary skills of your cofounders and if you have worked together before. Do not create a sub-standard presentation of your headshots and degrees only. The team slide is one of the most important slides.
UNINTERESTING OR UNREALISTIC PROJECTIONS
Projecting $5 MM revenue in 5 years will not excite any investor. Also, projecting $500 MM in 3 years will get you laughed out of the room if you are at zero revenue today. Avoid assumptions that you won’t be able to justify, like 500% growth in revenue with only a 30% increase in operating & marketing costs.
LACK OF UNDERSTANDING OF CAC AND LTV OF YOUR CUSTOMER
Be ready for questions on your user acquisition costs like what channels will you use to acquire a customer, what costs will you incur, what will be their likely lifetime value. Which areas show most promise with marketing, what is your typical sales cycle duration. Lack of answers to these questions means that you have not thought through your business plan.
NOT PAYING ATTENTION TO DETAIL
For your legal protection, put a copyright notice at the bottom and add the phrase “Private & Confidential.” Include page numbers on each slide so that the investors can easily reference a specific page. Make sure your presentation is a visual treat, not text-heavy and does not contain typos or inconsistencies.
NOT BEING ABLE TO EXPLAIN THE KEY ASSUMPTIONS IN YOUR PROJECTIONS
It feels you don’t have a real handle on your business if you can’t explain your financial assumptions and projections. If you go unprepared, you will not get a second meeting with the investors.
NOT ARTICULATING WHY YOUR PRODUCT OR TECHNOLOGY IS DIFFERENT FROM A COMPETITOR
You will have to explain why your product is different and 10X better than your competitor. You can assume that investors know about the competitive landscape. Don’t shoot yourself in the foot with a sloppy response. Also, if your product is 1.5X, 2X, or 3X better, most times that is not good enough. 10X better or 10X less costly is a great goal to hit.
NOT BEING ABLE TO TELL HOW YOU WILL USE INVESTMENT CAPITAL AND HOW LONG IT WILL LAST
Investors want to know how you will use the raised funds and your burn rate (so that they know when you will need the next round of financing). It will also confirm that you know your costs for hiring, marketing, support & admin etc, given their experience with other startups.
NOT CAPITALIZING YOUR INTELLECTUAL PROPERTY
Investors put a heavy premium on intellectual property. Be ready for questions on what IP does your company have and how was it developed, whether any previous employer of your cofounders can have a claim on your IP.
LACK OF DIRECTION AND LONG TERM STRATEGY
You need to have a clear strategy of where your company will be in 5 years and how you are going to get there. Unrealistic expectations, naïve assumptions will not help you in closing this round.
NOT UNDERSTANDING THE DIFFERENCE BETWEEN A STAND ALONE DECK AND A PRESENTATION
The stand-alone deck tends to be text-heavy because you are not there to explain it. It explains certain graphs and other assumptions & ideas. Your presentation deck should be visually appealing, with a maximum 5 words per slide if possible. This will help you make a great presentation as you will not be reading out from your slides (which is the fastest way to put a room to sleep). Use your stand-alone deck only when you can’t be there.
MISTAKES DURING THE PITCH
APOLOGIZING BEFORE THE START
Do not start with ‘I’m sorry, this is not what I normally do’.
When you open like that, it shows you lack confidence. You have virtually conceded that you won’t be able to sell to the investors before you start. It means your team did not plan a good strategy for how to raise money and no one in your team can close a sale as you are the best of the worst on your team.
STATED A PROBLEM THAT ISN’T A PROBLEM.
Frame your problem statement such that it is clear what is the problem. When you say- "The problem is the same-day delivery market, and we plan to combat the Amazons of the world," it does not mean anything. Do not assume that investors know what you mean.
READING FROM THE SCREEN
Aside from the juvenile nature of this tactic, if you don’t know your business well enough to do a 60-second pitch, nobody would be interested. If you aren’t confident enough in your knowledge about your company or your industry to look the audience in the eye, they’ll never trust you. Even if you stumble a bit, it is better than reading your pitch. They stopped listening as soon as you took your notes out.
SMELLING OF DESPERATION
Do not sound desperate when you pitch. If you come off as this investment is the only way for your business to survive, it seems needy and is unattractive to many investors, and can set you up to be taken advantage of. You'll end up giving away way more equity than you should. It is better to sound confident and make the investors believe that your startup is a gravy boat that they do not want to miss.
TAKING CRITICISM PERSONALLY
Most investors are direct and are going to ask you the tough questions. That's a good thing; it means they're thinking about your idea. Don't take feedback or tough questions as personal attacks. They have nothing against you.
WORRYING ABOUT THE DEMO/PRESENTATION THAT JUST WON’T SEEM TO WORK
If anything can go wrong, it will. Be ready for the worst-case scenario. The demo that you planned, might not work. Keep a video of the demo as a backup. Arrive early and get your laptop hooked to the projector before the meeting starts. If the on-screen presentation fails, use the print copies as backup. If something does not work, move on. Do not kill the effectiveness of your pitch by wasting time.
GIVING UNNECESSARILY DETAILED PRESENTATION
Most investors you are going to pitch to are experienced and know exactly what they are looking for. You need to give them the right information to convince them that your company is the right company for them to invest in.
FAILURE TO LISTEN
Investors will ask you a lot of questions related to your business model and technology. They want to make sure that the investment does not turn out to be a failure. Do not take the questions as a question on your competence. Treat this curiosity as a good sign and do consider all possible alternatives.
‘THIS IS THE LAST ROUND’ THREAT.
Do not try to scare VCs into investing by saying that it’s the last round of financing. It makes you look like a rookie. We all know startups need money to grow. Stay away from non-reasonable scare tactics.
USING STAND-ALONE DECK FOR PRESENTATION
Do not stand there and annoy your audience by reading your deck line-by-line. Make sure you capture their interest, lead their imagination and passionately share your ideas. This is your show, be the master of the show. If you only have a stand-alone presentation, then make a second version that is less dense in words for your pitches.
You look amateur when you say that your numbers are "conservative." Investors want a realistic forecast and would appreciate it if you could show it in your financial model.
No investor will sign an NDA. Investors can’t be exposed later by someone they did not invest in, claiming that their idea was similar to the one they chose to invest in. It would be better if you let them know that you are pre-market and that all the information you present should remain confidential. That said, don't assume the investors will not share your numbers with others.
I’LL HAVE TO GET BACK TO YOU ON THAT
Now, this is alright if it’s about one or two points, but if there are too many details that you don’t know cold, on the spot, it shows you are not close enough to the business.
Before your pitch, conduct a role play with a team member or close friend. Ask your “actor” to be a complete jerk – have her poke as many holes in your delivery as possible. Anytime she has any sort of question, concern, inconsistency, etc, have her voice that to you. Record it. Take notes. Go back and fix it.
Do all of this with plenty of time before your actual meeting so you can make tweaks. Chances are that if your friend is asking something, so will the investor.
NOT SAVING THE BEST FOR LAST
As you keep pitching, you are going to get better with time. Use recurring questions and concerns after each pitch to revise your deck accordingly. When you pitch, you will pitch to 20-30 different investment groups. Start presenting to the less known investor groups first, and present to your target investor groups after you've given 20-25 pitches already. Once you get to the big fishes, you’ll be confident to close the deal. Don't be surprised if you need to pitch 50-200 times to close around.
LEAVING WITHOUT THE Q&A
No matter how organized a pitch is, it may fail to answer certain questions your audience has. Planning for Q&A time allows your pitch to be clear to someone unfamiliar with your line of work.
RUSHING THE PITCH
Speaking slowly makes you sound more confident and knowledgeable. If you get nervous, try to calm down and have a glass of water. Do not memorize your pitch but speak from the heart.
PICKING THE WRONG ANGLE
As a developer, you might be excited about a different angle of your startup like a new back end technology, then what the investors might be interested in. Investors want to learn more about items that will help them to formulate a judgment, such as how the business is going to make money and how the company will scale. Pitch to your audience.
COMING IN WITH YOUR TEAM TO A PITCH MEETING, BUT ONLY HAVE THE CEO SPEAK
Investors want to know that you have a good team. They want to get to know your team. If only the CEO speaks, how will they gauge if the other members are any good? Also, don't have the team members contradict each other.
NOT KNOWING WHO YOU ARE TALKING TO AHEAD OF TIME.
Know your audience. Different partners in a VC firm focus on different sectors. It is best for you if you know how well informed they are in your market segment. If they are already aware of your area, you do not have to explain obvious facts. If they are not aware of your sector, be sure to introduce the critical details of the space.
When a meeting is confirmed, it’s best to ask who will be attending. The answer will help set expectations.
TALKING ABOUT FEATURES OVER BENEFITS
Make sure you appeal to the emotional side as well. Talk about how your product is helping customers, rather than your product's features. Talk in terms of the value your customers can extract from your product, not the features that create that value. Make it easy to understand why customers love your company.
Speaking of derived value is always a good bet. Sell a good night’s sleep rather than just a bed, sell 1,000 songs on your phone rather than 1GB of extra memory.
NOT FOCUSSING ON BUSINESS METRICS
Investors are concerned with 5 major questions: the market opportunity, your team’s ability to turn the idea into a profitable business, the go-to-market strategy, your current & projected numbers (CAC, LTV, among others), and what you are asking for. Identify what drives each investor. Do they want to be part of a groundbreaking company? Do they want to make money and exit fast? Target what drives them!
Focus on the business opportunity rather than spending too much time on explaining your product. If you focus on the opportunity, you’ll have a better shot at keeping the investors’ interest.
NOT GETTING A WARM INTRODUCTION
If you really want to hit it outside the park, make sure you get a really warm intro. Sometimes investors take a meeting with a lukewarm intro, with 99% certainty of not investing, just to be courteous to the person who introduced you. The colder the introduction, the lower the chances of your success.
NOT ASKING THE PORTFOLIO COMPANIES FOR ADVICE
If the previous founders the investor has funded tell you even one thing about what the investor loves or hates, your effort was worth it. This is inside information, mostly available to the inner circle only. So go out and rummage through LinkedIn for connections, stalk them on Facebook & twitter and find their email address. Use LinkedIn premium if all else fails. But do not return empty-handed from this quest.
DO NOT BE "UNCOACHABLE"
Do not scare away investors by coming across as "uncoachable." Your lack of flexibility, unwillingness to share control or not bringing in new executives at the right time might cost you closing the round.
DISCUSSING OWNERSHIP STAKES
Do not discuss how much ownership you're willing to offer investors in the initial pitch. These details come up after the investors have finished researching your company. Your primary goal right now is to build a relationship with the investors.
If an investor asks about ownership terms early on, simply say you're ‘flexible.’ Do not quote a hard number, that could kill your pitch right there.
NOT QUANTIFYING RESULTS
When you use words like "a lot of traction," "big market," 'little funding," it annoys investors. Vague terms have no place in an investor pitch.
If you close with "please talk to me and I can show you how to get your money back," it looks like an insult to investors. Aside from the obvious desperate nature of this plea, investors are not worried about getting their money back. They are interested in getting a 10X or 100X return on their investment. Getting their money back is not something that excites them.
NOT FOLLOWING UP IN A TIMELY MANNER
Follow up with your primary contact a few days after the conversation to suggest possible next steps that the investor can follow to learn more about the company and the opportunity. It would be better if you communicate some urgency about your fundraising process. If you get a "no," be thankful, the worst is not hearing back. Receiving a "no" is helpful because you won't be in a state of limbo. If you don't hear back from an investor after three days, consider that an implied n.
MAKING INVESTORS WAIT FOR THE DOCUMENTS
Serious investors will ask for more documents than simply a pitch deck. This can be anything from incorporation certificate to financial projections to tax filings. Have commonly requested documents like these ready, in a file-sharing site like Google Drive or DropBox.
There is no reason to make an investor wait for a couple of weeks while you gather these docs; it is a waste of time and momentum, and can easily be interpreted as sloppy preparation. If you make this mistake, all your previous effort go to waste.
PHRASES TO AVOID
All we need is 1% of the market.
We will get huge viral usage.
This product will market itself.
Google will want to buy us.
Our projection numbers are conservative.
A lot of traction, big market.