Don’t Say This to Potential Investors

don't-say-this-to-investors

How you approach an investor is often the deciding factor between a brief unproductive request for funding and a life-long relationship. The rules of personal engagement and sales directly apply. Raising capital is often compared to trying to make love to a porcupine. It is all in the approach; and knowledge, forethought, and planning go a LONG way.

If you are raising capital, you are in effect selling shares of your company. So, this is fundamentally a sales pitch. If you approach an investor in the wrong way, you are basically “unselling”…and it works amazingly well for one simple reason: there is simply always more quality deal-flow than cash to fund the deals. The fundamental question is how to position your company in the mind of the investor so that you can sell them shares (i.e. risk) of your company. If you are not good at sales and can’t find a partner or hire a professional that is, seek mentors to help or take a course in sales training. If you lack the wherewithal to afford sales training, buy a book (there are literally hundreds of books on the subject and few of them are exclusively devoted to how to raise capital), look online (as you can imagine, there are hundreds of sites on this) or, best yet, attend a classroom or mentoring session at your local entrepreneur center. It is most important to understand the mind of an investor.

Rather than focus on what to say, we have chosen to take the opposite approach as, despite the good advice out there, we still hear this kind of stuff all the time. Here is what you should NEVER say to an investor if you wish them to give you their money.
A favorite “what not to say” is “if I get 1% of this market, I will live on the beach.” This shows naivety at high levels. First, it completely ignores how difficult it is to take even 1% of a market. Second, it telegraphs that you have no marketing or sales experience. And, third, it says “I am in this for a quick score” meaning that you may sell off too early. Investors want to invest in entrepreneurs that can’t help themselves but to pursue their dreams with passion and commitment. If you say this to an investor, you will get a polite brushoff and no chance for a second impression.

The next one that ALWAYS shakes heads is “it is going to be $1 billion business in 24 months.” First, the challenge of scaling such a company would tear it apart. Second, Google makes approximately $1M per employee, which is remarkable. So, by making this statement you are saying something akin to you are going to hire 1000 people in 24 months. That is simply not feasible and clearly demonstrates a lack of business acumen. Again, the best response you will receive is a polite brushoff.

The ABC series Shark Tank has also added a new one to the litany: desperation. By watching the show, some entrepreneurs try something like “I will lose my house if I don’t get this investment”. Desperation is never an effective sales tool. Investors are ‘investors’ in your business, not a charity for your personal finances. You are not meeting with them to help save your house or pay your credit card debt. It’s great to demonstrate drive and motivation but the signal you send when doing so through desperation is that you are willing to take uncalculated and undisciplined risks with their money as you did with yours. Desperation simply says you are not a successful entrepreneur.

Another bad angle of approach is something to the effect of “I can’t lose; God is on my side.” The typical investor response is simply “tell me why God hates your competition.” While investors respect religious beliefs, this is just not enough justification for an investment.

These are just a few examples of the beginnings of what will undoubtedly be a very bad pitch. There’s lots more so please do your homework, practice and learn as much as you can about your pitch. Instead, focus on 1) your business and your business alone; 2) how you will take the investor’s capital to create sustained value; and 3) how you will return capital to the investor. That is how you will be successful.