Hi, everyone. This is Alejandro Cremades, and today we’re going to be talking about
the things that entrepreneurs should never say to investors.
Let’s face it; for investors, when it comes to investing in companies, it’s all about
pattern recognition; it’s about things that they have seen in the past. Also, there are
certain things that you want to say and certain things that you absolutely don’t want to
say because they can disrupt that process of you building that relationship, building
that trust, and for them to get to know your business inside and out, and for them to also
get excited to potentially make that investment that you need. With that being said, let’s
get into it. “You need to sign an NDA.” That’s the
typical mistake that first-time entrepreneurs would make, and here’s the reason why. For
exploratory conversations, for getting to know each other, be sure to remember that
fundraising is not about adding more friction to the process.
Fundraising is all about removing the friction; it’s all about addressing the concerns because
that’s essentially what is separating you and the money. So, what you want to do is
wait until you get to share the secret sauce and until you hit them with an NDA. Just for
having initial discussions, exploratory discussions, don’t go with an NDA because that’s going
to show the investor that you are a rookie. Another thing that you certainly don’t want
to tell the investor is that you have no competition. Let’s face it. There are at least 100 other
people that have thought about that same idea that you have and people that are executing
that same idea in a direct or indirect way. By you not showcasing or sharing your competitors,
people are going to think that you’re essentially hiding certain stuff.
The other thing about the competition is that you do not want to talk badly about them because
essentially that is going to be a turnoff. You don’t know if they are friends or if
they have people in common, and that’s not going to be a good look. So, always be super-respectful
as well, of your competitors. “We don’t really know our unique selling
proposition yet.” You’re not knowing your unique selling proposition is telling that
investor that you have not done your homework. You have not talked to your customers. You
have not done that quantitative testing, that qualitative testing via your website, via
customer calls, prospective customer calls. You want to have done all of that homework
so that you can talk about your customers and break down all the important information
of those customers because that’s what is going to get the investor excited. So whatever
you do, really approach those meetings understanding inside and out who your customers are.
“We have no weaknesses.” That is another thing that you don’t want to tell the investors.
There are always going to be certain challenges of building your business, and I always find
that you want to approach those conversations coming from a perspective of authenticity,
being really authentic and sharing it the way it is.
Otherwise, the investor is going to feel that you’re superficial, that you’re a fake,
and even though now that you’re on the dating phase, perhaps if they get married with you,
you’re going to not be able to share all the info. You’re going to be withholding
information, and that is going to ultimately lack integrity, and for them, it’s going
to destroy any type of trust with them. So whatever you do, always share it in the
most authentic way and share all the problems, all the challenges, and everything that you’re
facing because investors are not just giving you the money to take it and run. They’re
giving you the money because they want to help you in building the business.
“This is a sure thing. We can’t fail.” That’s another thing that you don’t want
to tell investors because here’s the thing: the market is always going to go up and down.
There will be challenges in your company. It’s not going to be a straight line. That
doesn’t happen in entrepreneurship. There are going to be certain wins; there are going
to be certain failures, and it’s going to be all about your team and how can quickly
your team can adapt to whatever is in front of all of you.
With that being said, there are always going to be challenges, and you cannot showcase
this to investors in a way in which it’s a sure thing. In many instances, if you’re
making a promise on returns, on an investment being so great, you can actually get into
trouble with the Securities and Exchange Commission, and they can actually come after you and sue
you. So, be very careful with what you say here.
“I don’t have an exit strategy yet.” That’s another mistake because here’s
the thing. The investor is giving you the money because eventually, they’re planning
to get a return on their investment. They’re not going to give you the money to just have
it in there forever. So, you need to have an idea of who are those potential players
that are going to be acquiring your business? Rather than saying, “We don’t have an
exit yet,” or even if you don’t want to do an exit, and you plan on keeping this business,
a good response could be either/or, you could say, “Well, you know. We’re planning on
building this for the long run, but Player A, Player B, and Player C would be very interested
in a company like ours because of A, B, C, and D.
That’s the way you do it. You just outline the reasons why and who those potential players
are, and maybe you can throw in some examples of companies in your domain that have been
acquired and some of those multiples to get people excited.
“We really need the money.” Again, that’s another thing that you don’t want to say
because investors want to invest in winners. Investors don’t want to invest in people
where they smell that sense of desperation. When you’re desperate, the best thing that
you can do is just close the computer, and go to the gym, and disconnect, and do something
else. Otherwise, you’re going to disrupt your financing round.
So, the best thing that you can do here is just always go from a position of strength.
And really, at the end of the day, the investor knows that you need the money. That’s why
you’re engaging with them, but you do not want to showcase that fear, that desperation
because that is a turnoff for investors. “We know everything; we don’t need your
help.” That’s another mistake because when you’re looking for money, you’re
not looking for the money itself. You’ve got to turn it around, and you’re going
for the actual network that is giving you the money.
How are they going to help you in building the team? Perhaps in making subsequent rounds
of financing. Maybe even introducing you to potential acquirers. So, here, what you want
to do is, you want to make sure that they feel involved, that they can potentially help
you with the business, that they can help you in sharing that journey together and maybe,
obviously, not on the day today as an operator, but perhaps with introducing you to the right
parties that are going to help you in accelerating and achieving those milestones that you have
in place over the next 18 to 24 months. “I need a big salary.” That’s another
big no-no. When you are starting a company, you are always trying to minimize the cost.
Obviously, if the investor starts to see that you’re throwing money everywhere, that you’re
paying yourself a crazy salary, that’s going to be a big no-no. That’s actually going
to be part of your financial model. So, you really want to put yourself at a minimum.
What is that minimum amount that you need in order to pay for your cost of living?
There are great posts that have been done by people like Peter Thiel, where they talk
about minimums. Especially, for example, if you’re at an early stage, you definitely
don’t want to go over $120,000, so that’s typically the amount. But, again, you want
to have that financial model that is outlining absolutely everything.
“We’re going to have a big party.” That’s another big no-no. When you’re closing this
round, essentially, that’s not a milestone. That is a stepping stone because, at that
point, the work is when it actually starts. You’re receiving that money, and that money
is coming with expectations. So, the last thing that you want to do is just celebrate
because there’s nothing to celebrate yet. You need to really unlock those milestones
that you have promised that you were going to do with their money.
That’s pretty much it. I hope that you liked this video. Make sure that you click the Like
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