5 Ways for Entrepreneurs to Get Investors to Say “We’ll Pass!”
March 16, 2011
5 Wannabe Entrepreneurs Proposing To Investors
One is arrogant and the investors rolled their eyes.
Investors have often been exposed to an entrepreneur who refers to a start-up as “MY” company. The word “my” doesn’t just quietly sneak into the sentence. It is said with defiance and overemphasis. “This is MY company” or “I’m not going to give you control on MY company”. It really says something to outsiders about the entrepreneur.
The founder called the investor after and the investor said
No funding, we will be passing.
4 Wannabe Entrepreneurs Proposing To Investors
This one is defensive and investors sat back in their chairs
Whether presenting to investors and the board, or just a curious audience, defensiveness is never a good sign. It usually happens during the Q&A session. Someone from the audience asks an uncomfortable question, one that will uncover a truth that the entrepreneur wants to remain hidden, or an innocent question about why a course of action was taken. Then entrepreneur become defensive. You can hear it in the tome of their voice. How dare the person ask a question? Can’t the questioner see the plainly obvious that everything about the company is magnificent and unquestionable right.
Once, I was consulting with a privately held tech company. The CEO was a professional manager chosen and brought in by the lead investor to take the company public. At the weekly company meetings, he gave the usual state-of-the-startup speech, the update on what’s going on with the company and industry. Never was this CEO ever a cheerleader. On several occasions, an employee asked him why management chose to take particular action. These employees were merely curious. That was enough to set him off every time. He got mad. He would scold the employee before answering the question. How dare an employee question his judgment? The company did become public and there were the usual analysts’ calls and briefings. The analysts weren’t happy with his attitude. Several commented publicly about how his answers always led them to believe he was hiding something. That he wasn’t telling the truth. The result, the stock plummeted. And today, this IPO is in Wall Street’s graveyard of failed IPOs.
Those who get defensiveness when asked for explanation are not people who can build relationships and contacts, which is required to manage investors, customers, vendors, and employees.
The founder called the investor after and the investor said
No funding, we will be passing
3 Wannabe Entrepreneurs Proposing To Investors
This one shows no conviction and investors shook their heads
So many times start-ups are a pet project of a founder for years. Then the founder tries to turn the project into an investor-backed start-up. Investors will want to know how you spent those years. How did the founder conduct business? Were milestones set? Were goals reached? Investors want to see a founder who acts purposefully. They don’t want to see lackadaisical progress.
At the Kentucky Derby, a thoroughbred horse is put into the gate, the horse is shifting its weight from hoof to hoof, eager to get going. The starting bell rings, the gate suddenly swings open, and the horse charges out of the gate. The horse runs forward, not wasting any energy with the slightest sideway motion. The time is now to run fast and hard. It’s time to live in the moment. A horse doesn’t get to the Kentucky Derby gate by practicing haphazardly, by never really challenging itself to run hard during all those training sessions and neither do entrepreneurs. Entrepreneurs don’t get to half-heartily pursue a project, then get investor funding, and finally charge to the finish line. Entrepreneurs have to prove they are worthy of funding and if they don’t pursue their project with gusto, they’re not going to charge out the gate when the bell rings. And investors know this.
If entrepreneurs are presenting an active project to investors, tell them what’s been done to date and why this shows the project is worthy of funding. Has the team acted with conviction?
The founder called the investor after and the investor said
No funding, we will be passing
2 Wannabe Entrepreneurs Proposing To Investors
This one isn’t assertive and investors wondered if goals could be accomplished
Is the team aggressive enough to win? To succeed, you have to fight through the naysayers and find your supporters. That takes a lot of confidence, a great belief in yourself, your company, and your product. Do you aggressively pursue your goals? Can you continue despite continual lack of measureable progress or setbacks? What will the team do when they get a “no” from a customer or investor?
I had this conversation with many entrepreneurs. For the most part, people will recognize their weaknesses. I had this conversation with a founder who just wasn’t pursuing customers, just wasn’t getting into their offices, and everything was dragging on but getting nowhere. The founder knew what should be done, but did nothing and continued to do the same.
The founder called the investor after and the investor said
No funding, we will be passing
1 Wannabe Entrepreneurs Proposing To Investors
This one doesn’t listen and investors wondered if they can gauge customers and the market.
I’ve heard investors complain that entrepreneurs don’t listen. What they mean is entrepreneurs aren’t getting their non-verbal signals. They aren’t observant and they don’t draw conclusions about what they say and hear. Many times people are polite, their concerns are voiced indirectly. In business meetings, a customer motivation and intent may need to be discerned through subtlety and implication.
Another founder and CEO had been working on her bootstrapped start-up for nine years. The CEO had many people work on her project, had meetings with customers, and had gotten positive feedback from customers. The investor could not determine exactly what the product was and questioned her, then the investor asked what her start-up had done in those nine years. She muttered afterwards that she was disappointed because she thought the investor was smart, but now she saw from his questioning that he was just an idiot. The CEO needed to click on her ears.
The founder called the investor after and the investor said
Block their calls. It’s not their proposals. It’s not their products. It’s them. They are the reason we as passing!
Filed under: Start Up Funding
5 Comments Leave a Comment
1.
Erika Napoletano | March 17, 2011 at 2:45 pm
Cynthia – a tweet from Sean Evans led me over here today. Were you sitting in the room with me at SXSW Accelerator? I was live tweeting the social tech sessions and actually had one of the presenting companies pick a Twitter fight with me because “I couldn’t see the value in Facebook and Google’s ad-driven revenue model.” Aside from having attended a powerful panel the day prior with 3 VCs and one startup CEO who mentioned all the poison that makes them pass on pitches, it didn’t bode well for a company out of the gate (and seeking funding) to pick fights on a public forum.
It was appalling to see how arrogant and ill-prepared some of the presenting companies were, but those who got it…GOT IT! Humble yet enthusiastic. Answers along with the appropriate “I don’t knows.” Chutzpah without the bravado. They’re the reason investors get excited about saying “yes.”
Thanks for a great piece on the heels of DEMO Spring and Accelerator!
2.
Kyle Lymberopoulos | March 19, 2011 at 4:55 pm
Cynthia stumbled upon your blog and really enjoyed this post. #2 is right on the money you have to able to persevere and always keep the ball moving. Thanks for taking the time and sharing your experiences.
3.
Tom Wheeler | April 14, 2011 at 2:24 am
Very good comments: don’t be too possessive, don’t be defensive, don’t be arrogant, too aloof, too self-confident, too passive, too offensive. Don’t be too much in any direction, but determined, rational and focused. Takes a good balance.
4.
Elias | April 30, 2012 at 9:17 pm
I once heard a talk about raising government grants for social ventures. The speaker was talking about how difficult it is to raise funds for a venture falls between non-profit and for-profit, as his venture could produce modest returns, but primarily was for social purposes. Because he was planning to have some return on investment, he wasn’t able to get certain government grants. I would be interested to hear about options for raising capital for ventures that are not completely non-profit, but don’t expect IRRs of 30-50%. Ventures that return 0-10% or even some loss, but serve a social cause seem like a great investment for a government that is already writing off losses. Thank you.
5.
Administrator | April 30, 2012 at 9:42 pm
What you are looking for is venture philanthrophy funds. If you go to the website for National Venture Capital Association, you’ll find a section on venture philanthrophy. There are private funds as well that engage in venture philantrophy.
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