In previous articles, I have occasionally mentioned “red flags” which every potential investor unconsciously listens for.
Other writers, like Guy Kawasaki, have irreverently called some of these “entrepreneur lies,” but I prefer to think of them as innocent over-enthusiasm or over-confidence that can kill your deal.
At any rate, here is my summary of the top 10 from my experience with hundreds of elevator pitches, business plans, and executive presentations.
Click here to see 10 common “entrepreneur lies” that are huge red flags to investors >
Martin Zwilling is CEO & Founder of Startup Professionals, Inc.; he also serves as Board Member and Executive in Residence at Callaman Ventures and is an advisory board member for multiple startups. This post was originally published on his blog, and it is republished here with permission.
If your product really represents a paradigm shift, you probably haven't figured out yet what problem it solves. At best we can count on it taking many years to catch on, just like other disruptive technologies before you. No investor wants to wait that long for his return, or fund the years of waiting.
It always amazes me how an entrepreneur can define his market opportunity so broadly, then assess his competition so narrowly in the next breath. You won't impress investors by claiming that everyone in China needs one, and nobody else has exactly the same features to compete with you.
This is a terrible statement because there are only two logical conclusions. A first conclusion is that there must not be a market. Or worse yet, the entrepreneur is so arrogant that he hasn't even used Google to figure out he has competition just down the street.
Usually the reason the big companies are no threat is that the market is too small. Competing with IBM, Microsoft, and other large companies is a very difficult task. Entrepreneurs who utter this line are kidding themselves. They may think it's bravado, but investors think it's stupidity.
A startup's projections should never be conservative. Plus I have never seen a startup achieve even their most conservative projections. We all know that financial projections are a confidence test on how committed you are to the project, so don't try to minimize them.
If the entrepreneur and team were that proven, they probably would be funding others rather than asking for money. Truly proven in an investor's eye is a team that has both failed and succeeded at least once, with success meaning 10x or more return to investors.
It's easy to get your executive friends to express interest in the huge opportunity you describe, but don't assume they will actually take the big leap down from their high-paying job to the meager salary you can offer. Rest assured the investor will ask for names, and place some calls. Hedges here by your candidates will definitely kill the deal.
The mention of unsigned contracts normally takes away more credibility than it adds. You can counter this position by bringing the interested party to the meeting for support, or at least showing a Letter of Intent (LOI). Otherwise talk about paying customers only.
I highly recommend that you screen your business plan and your executive presentation carefully for variations on any of these statements, and remove them. Your integrity and honesty are you best assets, so don't jeopardize them with common over-statements, even if your intent is virtuous.
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