No one who’s trying to get their startup in front of a venture capitalist needs to be told how challenging that can be. But some of the trouble can come unwittingly from entrepreneurs themselves.
Startup founders often make decisions that they think will protect their ideas but end up sabotaging them instead. Here are some of the most common and how to avoid them.
My first time around as a startup founder, I refused to show my business plan to anyone without them first signing a nondisclosure agreement (NDA). I’m sure I missed funding opportunities as a result. I can’t offer many more details than that, though, because my company never had a chance to develop that far. By the time I got around to starting my second business, I couldn’t have cared less about NDAs. I knew that no one had the ability to execute my plan as well as I did. Sure, they could read my blueprints, but building it was another story.
Entrepreneurs all need that confidence. Ideas are a dime a dozen. For all you know, the investor you’re pitching might already be talking to another startup with similar ideas. Your team, your plan, and your ability to execute are more important than your “secret sauce.”
Revenue projections, competitive analysis, and vision are all important, but they’re all forward-looking. Investors want to know who’s driving the bus right now. Are the goals of everyone on your team aligned? How have their past experiences prepared them to execute your business plan? Be able to explain how your team’s track record sets your new venture up for success.
Stories about founders losing control of their companies to investors are ubiquitous. But most startups fail anyway, and captaining a sinking ship is cold comfort. Investors want to see startup founders delegate and share responsibility. You won’t be able to do everything yourself forever, and investors need to be able to see that you can accept help.
Money is the same no matter who you get it from. When you’re looking for investors, look beyond the term sheet for other factors that differentiate them. Do they understand your space and your vision? Will they be able to make introductions to the right people on your behalf? Are they invested in you, or just in your company? When something isn’t going as planned, will they offer support and guidance, or just cut their losses and run?
Your investors are on your side. When you win, they win. You’re running a startup, which means that investors don’t expect everything to go smoothly. No one likes hearing bad news–or delivering it. But investors would rather hear bad news now, when there’s an opportunity to fix things, than later when there isn’t. Problems can compound quickly, and it’s easy to get in over your head. But whatever is happening probably isn’t as insurmountable as it seems.
Good investors value consistency and transparency. They want to know you’re going to be honest about roadblocks and bring them up as early as possible.
Anyone can draw a chart projecting rapid growth. It doesn’t mean anything, and it only makes you look naive and cocky to investors. Do the research and be sensible in your projections. VCs are looking for sustainable businesses, not pie-in-the-sky dreams. Realistic growth projections tell investors that you’ve carefully considered the market you want to enter and have done your homework.
Marketing should be a core part of your business plan from the beginning. This doesn’t mean starting an advertising campaign before you’ve written your first line of code. It means that if you don’t have a go-to-market strategy, then it doesn’t matter if you have a product. Investors need to see that you’re building something that the world needs, not something you hope it needs.
Persistence is key. I’m not saying to camp outside investors’ homes. But be relentless in pursuing customers and revenue opportunities. If you believe in your product, stop at nothing to let people know about it. And if someone isn’t interested, find out why. Then come back with something they will be interested in.
When I started Klipmart, I went to every studio explaining the need for them to run not only their movie poster but also their TV spots online. At the time, I didn’t know anyone in the movie industry, so I called secretaries to find out who ran digital at each of the major studios.
Many people told me that the ads were too small, or Java video was too slow. I listened and came back with a larger and faster video player, finally convincing Lionsgate to try a $1,000 test run. After sharing the results of that campaign with other studios, they agreed to try our technology, too. Three years later, nearly every studio was using our product on all of their digital campaigns. A year after that, we sold our business to DoubleClick.
Persistence doesn’t mean being pushy. Persistence means you’re determined to get your ideas in front of potential customers and equally determined to listen to their feedback.
It’s not always easy to take advice, but every lesson you can learn from someone else’s mistake is one you don’t have to waste time making yourself. And in today’s startup environment, time is at least as important as money.
Chris Young is managing general partner at Revel Partners, an early-stage venture capital fund focused on emerging technology leaders in B2B enterprise software.