Many new entrepreneurs are so excited by their latest idea that they can’t resist contacting every investor they know, assuming the investor will be equally excited and want to contribute immediately. Others will work hard on a business plan, and then mail it indiscriminately to every potential investor they can find on the Internet. Both of these approaches are a waste of your time and theirs.
The best professional investors receive dozens of proposals a day, so they are conditioned to look for quantitative data, rather than passion, for credibility and potential. They also look for entrepreneurs they know from past experience and warm introductions, or for evidence that you have previously built a successful startup, and sold your last one for maybe $800 million.
If you are not in that rare category of known and proven entrepreneurs, you should avoid the following list of my top ten turnoffs that I have personally experienced as an angel investor. These will put your proposal in the circular file, and even future good opportunities from you may go to the bottom of my list:
“Give me a call to hear about an opportunity that can’t fail.” Teasing or spamming an investor is not the way to his pocketbook. Also suggesting that they check out your website or video and tell you what they think will not likely peak their curiosity. Every pitch should start with a concise statement of the problem and your innovative solution.
“Attached is a copy of my full business plan for your review.” Too much detail at first contact is just as much of a turnoff as no information. The first page of the business plan better be an executive summary which gives the investor a taste of the financials, as well as opportunity, competition, and key executives.
“I don’t have a business plan, but the technology is disruptive.” Investors are buying part of the business, not the product or service. They only want a quick overview of the product, not detailed features and patent secrets. If you haven’t yet finalized the business model, cost projections, and customer segments, you aren’t ready for investors.
“Excuse the typos and cleanup that I’ve been too busy to finalize.” Don’t send investors documents and notes that would be rejected by any high-school teacher. These will quickly convince investors that you will be equally unprofessional in your attention to detail in running the business. Investors invest in the jockey, more than the horse.
“I’ve used a few well-known acronyms and abbreviations for brevity.” Technical jargon may be natural for you, but investors read this as arrogance or laziness on your part, if not an intentional effort to intimidate the reader and obfuscate facts. Every acronym should at least be spelled out and defined at its first appearance in any content.
“I think you will find the business plan answers all your questions.” Business plans the size of a small book are a big turnoff to investors, and will only serve to make your business seem more complex and more risky. A tightly-worded plan of approximately 20 pages is effective in painting the overall picture, including all the key financial elements.
“An additional level of detail is included in the various appendices.” It’s always impressive to have stand-alone supporting documents for product specifications, sales plan details, and backup financial reports. But including all of these in the base plan to make it look more impressive will probably backfire.
“I really can’t find any worthy competitors in this space.” Avoid degrading or demeaning your competitors, unless you can quote third-party data. Investors read this approach as naïve, even bordering on unethical. Talking about competitors should be your opportunity to make positive statements about the advantages of your own product.
“Let me show you a demo rather than a business plan.” Demos never go according to plan, and ones that work go on far too long. Remember that investors can’t see the business from a demo or prototype, and they won’t appreciate all the love and work you have put into building the product. The best demos to investors are 30 seconds or less.
“Look how many social media ‘likes’ my site has generated.” We all know how to get friends and peers to pump up our story online, but investors want to see feedback from paying customers. Real contracts, testimonials, and even statements of intent are much more effective, if not real revenue and growth statistics.
As a new entrepreneur approaching an investor, you only get one chance for a great first impression. Passion is necessary but not sufficient to get their attention. My advice is to pick your opportunities carefully, prepare thoroughly, and focus more on the financial side of your story. It’s a lot easier to turn off an investor than it will be to get them turned back on later.