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Category: Pitch, Startup

What Startups Should Never Say During A VC-Pitch

I’ve been listening through a number of startup pitches in Silicon Valley, both as observer, and to give feedback as pretend venture capitalist/angel investor (I will refer to them as VC in this article). The following is a list of phrases that startups mentioned at pitches from what I have witnessed or that I have heard of, and that VCs typically don’t like to hear. I clustered them into ten categories and give explanations why they should be avoided. I will try to update them on a regular base.

Note: not every VC dislikes each and every one of those phrases. But be careful as they may project a wrong image of you, your team, the idea, and what you know. And then: some of these may be more specific to Silicon Valley due to the nature of the VC and startup market here.

Read also the collection of items that you SHOULD say at a VC pitch: What Startups Should Say During A VC Pitch.

1. Growth, Customers, and Market

# Phrase Explanation why to avoid it
1.1 “The market is x billion dollar and we need only n percent of it.” A market that is that large and well defined has already a lot of competitors. Even if you can capture a part of that market it also means your own revenue depends a lot on the activities or of your competition. Even if you can have n percent of the market doesn’t mean that you will ever be profitable, when your competitors can drop prices and force you to do so as well.
Even if there is such a large market, it does not mean that your product/service is necessary. You have to first proof that your product has its market, not any market.
1.2 “The market is ginormous.” See #1.1.
1.3 “There are x billion of internet/mobile phone users and we only need n percent of it.” See #1.1.
1.4 “This space is really hot / exploding / trending right now.” When a space is hot, then it also means that a lot of others noticed and that there is a lot of competition going on. You may not be the first mover and unless your product or service has any other unfair advantage, you will have a difficult time to compete even in the hottest market.
1.5 “This is absolutely going to be a 100x.” See #1.4.
1.6 “The customers don’t ‘get it’ right now, but they will catch up in a few years.” Not your customers don’t ‘get it’, it’s you who doesn’t understand the customers’ needs. It shows the VC that you haven’t cared enough to take feedback from customers to improve or adapt your product or service to what the customer needs.
1.7 “Our product is viral.” Unless you can prove it with a hockey-stick growth curve, no VC will believe you that.
1.8 “Sorry- what’s TechCrunch?” You want to go to market and don’t know the most important publications in your area that you should talk to to promote your article?

2. Financials

# Phrase Explanation why to avoid it
2.1 “Here is our business plan for the next n years where we see x amount of revenue and y amount of profit.” A business plan for a startup is obsolete as soon as you have the first customer. What customers are willing to pay and what your expenses are are vastly different from what your business plan says. So don’t worry about calculating revenues and profits to the second decimal and for five years. It’s bogus anyways. A good startup investor knows that and will be more interested in what the vision is and what problem you solve.
2.2 “Our financials are conservative.” Even the most conservative estimate is at least twice as high (for expected revenue) or half as expected (for expected costs) than what you will get. Nothing is easy.
2.3 “We are already profitable.” That means you are already taking out money of the company instead of conquering and occupying the new market.
2.4 “Within five years we’ll make n hundred million dollars revenue.” That will almost certainly not be the case.

3. Competition

# Phrase Explanation why to avoid it
3.1 “Google/FB/Uber are too stupid to build that, we are much better.” This sentence shows a type of arrogance and missing humility on the side of startup founders. They think that they are the only smart people in the room. A VC regards this as delusion, which will make if difficult to work with the founders, because they won’t take any advise but be stubborn and arrogant.
Furthermore those companies that you mention may not do that because of multiple reasons:

  • they already tested it and found it that there is no need for this
  • they are already working on it and may soon – unbeknownst to you – launch it (and thus blowing you out of the market before you even entered it)
  • they may be working on more profitable services and products
  • they really may not have thought of that – then you may have a chance
3.2 “We have no competitors.” A VC interprets this as “We haven’t even bothered to google our competitors.” In 99.99% of cases a VC has heard this very same idea in one of the other variation. Expect that they heard it at least 10 times before you came to them. This is especially rampant with startup founders from outside the US, where English is not their mother tongue. They often researched (if) in their own language or market and found out there is nobody in Austria/Chile/Japan/Luxemburg/… doing it, so it must mean ‘there are no competitors’.
3.3 “We’re unique in that we’re social / mobile / local.” You focus on features more than benefits to users. See also #3.2.
3.4 “Our competitive advantage is that we’re first to market.” Do you remember Myspace and Friendster? They were first to market in social networks. Guess what: Facebook ate their lunch. There were companies with touchscreen tablets and phones before Apple. The list goes on. A first-mover or first-to-market may be there, but it can be too early or the team may simply be not good enough to execute the idea well and fast enough.

4. Vision

# Phrase Explanation why to avoid it
4.1 “We are the next Google/FB/Uber!” The chance is that in 99.99% of cases you are not. So don’t even brag with that. In Silicon Valley alone there are 70,000 startups at any time. Currently there are around 100+ unicorns (with evaluations of at least $1bn) and around a dozen decacorns (with evaluations of at least $10bn), of which 10 are from Silicon Valley. out of every 10,000 startups there is one that may become a decacorn. And that is just a very recent development that companies grow to such a large business.
4.2 “We’re Facebook for X.” More often than not, the chosen company is wrong, so that it indicates that the founders don’t even understand the most famous and successful companies and their products/services. Just tell what problem you solve.
4.3 “This product is so awesome… it’s to XYZ what digital photos were to Polaroid.” For every ‘XYZ that was what digital photos were to Polaroid’ there are a thousand others who were nothing to Polaroid, not even a footnote. It’s more likely that you are the footnote. So don’t bother with such a sentence.
4.4 “This is the Facebook/Google/Uber/…-killer” See #4.3.

5. Solution

# Phrase Explanation why to avoid it
5.1 “We’ll figure it out.” You have no idea what your product or service is. Come back when you do.
5.2 “Our solutions solves this and also this and also this and also this and…” You are boiling the ocean. You don’t know what your customers need, that’s why you are trying everything. See also #1.
5.3 “We’re going to use machine learning and artificial intelligence.” You are just using buzzwords to make your startup sound better and to lull the VC, while in reality you use just some probability and statistics tools.
5.4 “We are uniquely positioned to deliver world class services.” How? If this is a claim that you cannot substantiate, don’t say it.
5.5 “We offer our clients end-to-end solutions to their market-specific challenges.” What does that even mean? See also #5.4.
5.6 “We are a dependable and trusted solutions provider.” See #5.4.
5.7 “We outsource technology.” You must own the technology and built the core functionality in house. If you don’t understand your own technology, you will almost certainly fail.

6. Funding

# Phrase Explanation why to avoid it
6.1 “<BigNameVC> is really interested in us.” Is it? I know them and will ask them. And if you are too much interested in the deal dynamics then you are not focusing enough on the product or how you are going to build a business.
6.2 “This is the only round of funding we will need and if you don’t invest now you won’t have another chance in the future.” That sounds like a threat, while in reality it’s way more probably that you a) will not raise enough money right now and if, then b) you will definitely need more money in later rounds (trust me, you will always need more money), but c) doesn’t mean that you will get any money in the second round. It’s more likely that you come begging to VCs to raise more money.
6.3 “We’re closing next week, and want to squeeze you in.” There is no squeezing in. It’s the rare startup (one out of 10,000) that raises more money than planned.
6.4 “I know you don’t invest in X, but we’re the exception.” It’s very very very unlikely that I invest in an area that I don’t know much about. And you already know that I am not investing here, so why do you even waste our time?
6.5 “All those investors who turned us down just don’t get it.” A variation of #1.6.
6.6 “After we raise $xK to build the prototype, we’re going to raise another $400k with a Kickstarter campaign to fund production.” There are two options:

  1. You do a Kickstarter at the beginning and when you are successful, you come back to VCs. Because then it’s proven that there is a market and people are willing to hand over money for your product or service, even that it is not yet here.
  2. You raise money from a VC, and the next round is another VC round. It’s rather unlikely that you do a Kickstarter afterwards.
6.7 “Now’s the time to close the deal. We are not too sure, if we will want you in a month.” See #6.2
6.8 “You will never have a chance to invest at the low valuation you can get today.” See #6.2
6.9 “We’ll do a Series A six months after our seed round.” Of course you do, and you rather start now thinking of it.
6.10 “<SoAndSo> got a $100 million valuation for their startup before they had any traction, so obviously we should too.” No, they got it because they were first/better/faster/capable of doing it than you. You are laggards.
6.11 “We don’t need funding, we just need connections.” Sure, I will open all my connections for you without an opportunity to invest in your startup. Do you think I am a charity? Don’t get me wrong: I will do connect you if I think that another investor is better suited (I may not invest in that space). But why should I connect you to my business partners?
6.12 “Firm XYZ is about to give us a term sheet.” Sure, have you already presented to their partners? No? Why do you say that then?
6.14 “We have a verbal term sheet.” You don’t have anything.

7. Legal

# Phrase Explanation why to avoid it
7.1 “You need to sign an NDA before I pitch to you.” No VC ever will sign an NDA for a pitch. It’s very likely that they have heard this idea already a dozen times. In addition, you would put all the legal risk on the VC, while you can pursue or abandon the idea at your own will.
If your idea is so great, they would go with you. Mostly, the idea is not that great, but the team may be good, and in the end a VC invests in a team. A good team can make a good idea great. A bad team will fail with even the best idea.
.72 “I know that investors are just waiting to steal my idea.” VCs are not here to do ideas by themselves, They invest in teams with ideas/products/services/vision… See also #7.1.
7.3 “We have not shown it to customers yet, we want to file the patent first.” That means for a VC that you have an unproven idea that you haven’t tested with customers yet. So instead of spending time, energy, and resources on figuring out if your idea even solves a relevant problem for your customers, you are spending time, energy, and resources on filing a patent for an idea that may not be having a market.
There are exceptions to that: when you are operating in an industry where patents are critical, such as pharmaceuticals etc., then you should spend resources and time to file patents. But this does still not excuse you from finding out if this thing solves a problem for your customers.

8. Team

# Phrase Explanation why to avoid it
8.1 “We (three co-founders) are all CEOs.” Surprisingly many startups with co-founders have not decided, who of the founders has which official role. So when a VC wants to know who is CEO, CFO, head of product etc. often you hear “We are all equal, we are all CEOs.” Of course this is something that the startups has to overcome and name one of them CEO, because in the end somebody has to make the call when there is a hung jury on a decision.
8.2 “I was SVP at <big name corp>. I know what I am talking about.” You just told the VC that you are arrogant, and won’t listen to any advice and coaching that the VC gives you, as well as that probably not even facts do make you change your opinion.
8.3 “I’m a nerdy engineer wielding technology and chasing a problem.” That’s great, but not good enough for starting a company. We need you skilled on multiple levels, or get some co-founders on board that can help you with that.
8.4 “We don’t know how to code, but we have some kick ass engineers.” See #8.3.
8.5 “We’ve worked really hard and we’ve got everything figured out.” No doubt, everyone is working hard. But claiming that you have figured it out will explode in your face as soon as you go to market and have your first customer. You need to be willing to learn, as opposed to knowing everything.
8.6 “Since I started looking into this space three weeks ago I’ve gotten really into it” So you don’t know anything about the space, because you just started three weeks ago to look into that space and you have no other credible expertise.

9. Pitch

# Phrase Explanation why to avoid it
9.1 “The problem and solution cannot be explained in under 2 minutes.” If you cannot explain the problem and solution in under two minutes, you have not understood the problem and the solution.
9.2 “I’ll answer that question in a few minutes, let me just get through these next two slides.” You are giving a pitch, not a presentation with slide decks.
9.3 “We’re going to disrupt…..” No, very likely you are not.
9.4 “My friend Mark Zuckerberg..” This is name-dropping. Usually it’s not true. And even if you are friends with this or that guy, it doesn’t influence my investment strategy.

10. VC

# Phrase Explanation why to avoid it
10.1 “I know you’re gonna love this.” No, because you don’t know what the VC likes. Such a phrase alienates the VC.

More

Read also the collection of items that you SHOULD say at a VC pitch: What Startups Should Say During A VC Pitch.

Scott Kirsner compiled another list of phrases that instantly mark entrepreneurs as amateurs.

Feel free to add phrases that I missed in the comment sections so that I can expand the list.

  • Ron Ramos

    Very accurate, made many of the blunders listed above. The purpose of a venture is to make money. If you can do that, the VC listens…

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