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Top 8 Faux Pas Claims by Entrepreneurs Raising Capital

Capital Raising Faux Pas from The Startup Garage

What Not to Say to Potential Investors

Yes, you need to impress an investor if he/she is going to break out the checkbook.  However, there are some common claims made by first-time and seasoned entrepreneurs alike that do not resonate well with investors.  Some of these claims are infamous buzz words that can be explained in other terminology, other are just outright lies.  In any case, try to avoid these claims in your investor pitch.

1. “Our projections are conservative.”

This may or may not be true.  In any case, investors are less interested in whether your projections are conservative or optimistic and care more about whether they are realistic and how well you can defend your assumptions.  Every investor knows that projections are based on assumptions that will change as the business develops.  Yes, investors are looking at potential returns when looking at financial projections.  But, they are also looking at your ability to turn a business concept into a realistic business model.

2. “We have no competition; no one else is doing what we do.”

Avoid this claim at all costs!  The vast majority of the time this statement is complete false — every good opportunity has direct and indirect competition.  For the rare occasions when this statement is true, it is still a slight exaggeration.  While no one else may be doing exactly what you are doing, there is someone providing a similar product or service that solves the problem that they are facing.  If you truly are a first-mover, make sure you are prepared to address investors concerns about trail blazers making mistakes and costing lots of money.  Lastly, these statement just frustrate investors.

3. “My competition is too slow to be a threat.”

Your competition may be too slow to be a threat, right now.  But, your competition can quickly improve and catch up once you enter the market.  Your competitors most likely benefit from vastly superior market traction and capitalization.  Rather than showing naivete, take some time to prepare sustainable competitive advantages or barriers to entry that you can put in place to ensure that your competition cannot catch up quite as fast.

4. “All we have to do is get 1% of the market.”

There is so much that is off-putting to investors with this statement.  First, it shows that you probably don’t understand your target market.  If your target market is so broad that only 1% adoption will make for a successful business, then your target market definition is likely way too broad.  Second, if you doubt your product/service/brand so much that you only think you can attract 1% of the market then why would an investor get excited?  Third, percentages can be deceiving and it’s an easy route for disappointment.  Rather, look at how many people you need to sell your product to.

5. “Patents make our business defensible”

It is very rare that a patent makes a business defensible against competitors offering similar products.  First, you patent is most likely only a provision patent (not yet granted) and second, it only protects a very specific application.  Learn more about patents and their limitations here.

 6. “We have a few huge contracts being signed next week!”

Whether this statement is false or not, many investors will certainly be considering its validity.  If they happen to believe you – and if they are smart – then they make a commitment to investing next week when the contract is signed and or cash received.  If you truly have contracts signing next week, then hold off on raising capital until those contract are signed (you will be much more attractive and worth much more at that point).

7. “Key employees will join us as soon as we get funded.”

While you may have the capital to attract key employees, money doesn’t mean you will have a successful business.  Building a successful business takes a lot more than just a pile of cash.  Key employees know this and will be attracted to your company before the funding comes if they truly believe in the opportunity.  Additionally, if you don’t have the revenue to pay for key hires that are necessary for the business’ current success then you likely are not attractive to investors.  Investors want to see proof of concept and nothing shows that more than a strong customer base.  furthermore, strong revenues will improve your valuation and reduce financial pressures.

8. “Several firms are doing due diligence.”

This statement can seriously backfire.  Nobody likes the feeling of being hassled by a car salesman, including investors.  If the statement is true, great — you are in a perfect negotiation position should both firms decide to make an offer.  If the statement is not true, you are running the risk of alienating a firm that may genuinely be interested in you.


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