Five Undervalued Things That Make Investors Say ‘No’
Did you know that investors actually grade the pitches they receive — not just by the ideas and their potential – but by how they are presented, how compelling the story the team can tell, and by something as little as the body language of the team presenting their ideas?
I spoke with a number of venture capitalists and investors, including entrepreneurs who have gotten funding for their startups, and here is a list of five little things that are important enough to make you get ‘NO’ for an answer.
Even though many investors will invest in your idea as long as you show that it can survive without you being there every minute, no investor will invest in your idea if they don’t believe your team is the right one to build a company that will succeed.
So what’s your story? How do you present yourself? These are little things, but they are important enough to make you get shown the door. Remember that a good idea in the hands of a bad entrepreneur is a bad idea and an OK idea in the hands of a great entrepreneur is a great idea.
So how much do you believe in your idea? You might not know this, but the moment you start telling that story, anyone can see just how engrossed, how devoted and just how crazy you are about it and that could be the one thing that’ll make the difference.
According to Tony Atti, CEO and Co-founder of Phononic, a $158m venture-backed semiconductor cooling company: “If I believe more strongly in the aspirational outcome of the investment than the founder and his or her team, I’ll walk away regardless of how compelling the technology product or service is.”
Steven Bartlett, CEO of The Social Chain Group stated: “Over the years, probably the most important thing I have learned from encountering numerous different investors from different industries, all with different values, is the fact that they invest based on the people. The biggest misconception an entrepreneur can make is that they (investors) are invested solely in your idea.”
Many young entrepreneurs often try to run even before they can walk; so they have one idea sitting on their table and they’re already trying to launch the next one. Sustained long-term focus is very important, and when it’s combined with impatience — which, in itself isn’t a bad thing — it leads to success.
Bartlett shares an experience he had with an ecommerce business: “decided it wanted to launch in stores, without having success online. It had a lack of focus and that is the one thing that rings alarm bells for me.”
Sam Denton of Denton Wealth Strategies, puts it this way: “They should know how to manage risks. If they don’t know how to manage risks, and they’re telling me that my money is not important enough for them and they don’t know how to guide themselves and investors’ money into success, they’re likely to lose that opportunity.”
Many entrepreneurs have a hard time actually listening, especially when you’ve been asked to pitch your idea. Earlier, we mentioned that being a good storyteller is a very important, yet rarely mentioned skill investors look for in entrepreneurs, but it really doesn’t end there.
Being able to convince an investor to invest in your idea goes beyond just talking, they just want to chat with you, they want to have an honest discussion with you, and they wish to know more about you and your idea so that they’ll set the right expectations.
According to Mark Pavlyukovskyy, a Forbes 30 under 30 in education, and the CEO of Piper Inc. “I find that founders get really excited when talking about their idea and have an overwhelming number of facts, statistics, and tidbits of knowledge in their head that they unload on you in a meeting. As an investor, you only care about a few very specific metrics, and the rest of the time you want to actually engage in an honest conversation about the business rather than being pitched. A founder’s lack of awareness of your needs, and their inability to steer the conversation based on your questions, but by the pitch they have memorized is a really big turnoff.”
When you’re pitching to investors, having a plan of how they’ll get their money back is very important. This isn’t just about you and your idea, a considerable part of your pitch should also touch on when they’ll get their investments back and what they can expect to get in the long run.
When you structure a deal that pays attention to the investors getting their funds back, they’ll see you as having a clear picture – that your plan treats them as a priority, and it shows them great appreciation.
According to Nicholas Fiorentino, CEO of CrediReady, a San Diego-based financial services matchmaker: “In raising my last round of funding, I actually negotiated the valuation by letting them inject funds and set the multiple 90 days AFTER investment, based on that quarter’s profitability. This allowed them to get a good amortization and expectation of when they’d get their funds back, as well as what future cash flows might look like.”
He added: “Being greedy is the biggest turnoff for an Investor. It is important for an entrepreneur to remain focused on the bigger picture, particularly at the beginning of the company’s life when the risk is at its highest.”
These are some things we rarely ever give attention. Applying these tips I got from leading investors and entrepreneurs will make a difference when next you have to pitch your ideas.