What this means: Hockey stick again. We are poised for slow, steady growth but if you don’t think you’ll get your money back within the life of your current fund you won’t invest in us.
That’s why we’re telling you our sales are going to go through the roof in no time.
What this means: If we didn’t think we could beat them why would we be here and why would you invest in us?
What this means: Would you prefer “We’re a bunch of propeller heads but we will learn on the way – with your money. We’re good to go”?
The reality is a good mix of experience and upstart energy is optimal but doesn’t always happen. VCs generally prefer proven winners – but often those winners take their money and go it alone the next time as they don’t want VC interference in their next start-up.
In the US, VCs are more willing to invest in people from failed start-ups than in Australia (where this is seen as a real problem) as long as they can tell the VC why they failed, what they learned and what they would do differently next time.
This is a known cultural issue that can make it tough for Aussie entrepreneurs who failed the first time and are looking for local capital.
What this really means: And if we didn’t have any IP you would tell us that if we fail you will have nothing but promises to back up our investment in you.
But, you’ll also tell us IP is worthless without a solid business model and sales to go with it when you look at valuation.
One of the challenges with IP for smaller companies is the fact that large companies can often put more lawyers on the job and litigate them to a business death regardless of who is right.
Having a large VC behind a start-up acts a protective barrier that can often come in handy in a litigious marketplace.
What this really means: Yep, didn’t we hear that with China?
Similar to #1 and #2 above, entrepreneurs must spin a great story and show how their “magic” recipe will grab market share from competitors.
The good thing is that if 1% of the market will make this company a success then the target market is likely large enough for a VC to be interested in it fulfilling challenge #2.
Kawasaki says: “The average number of these 10 lies that I hear in most pitches is 10. At the very least, tell investors new lies.”
If you think about this from an investor perspective, they look at hundreds if not thousands of business opportunities a year.
Most of the start-up executive memorandums and business plans submitted to the larger VCs are looked at first by entry-level MBAs from expensive schools.
How long do you think these guys would last if they asked a partner to look at an investment that has little potential for fast growth and will require many years before they get a decent return?
Same thing goes for the partners. No partner wants to go into a deal on their own without any other partners from their firm thinking it could be a home run.
They want all the partners to buy into a company they champion so if it goes south they don’t have a finger pointed at them down the road when the fund hasn’t made a great return to its investors (only the top 25% of VC funds make profitable returns and half lose money).
Entrepreneurs must look at the big picture to properly prepare themselves for the investment game.
These are the things that any potential investor wants before they invest in your start-up.
Tell the truth as much as possible but also know this is a dance and you need to get in the door to pitch your idea and your team.
On the flip side, investors often expect exaggeration in the pitch process and it is built into their evaluation of your company.
