10 Things Founders Say That Make Venture Capital Investors Pass
I listen to 100+ pitches a month and invest in 1 startup on average. There are some things that founders say that make me instantly lose interest. Here are the 10 sentences that make me pass.
1. “Dear Sir / Madam”
If your email feels like spam, it will be treated as such. It’s not about VC egos.
- It’s poor sales, and you need to be a top salesman to win at a startup,
- and because I can’t see it, anyway. Those emails are automatically hidden by smart filtering systems VCs use like Superhuman or Sanebox.
2. “Our company is a software agency spin-off”
This is not always bad. But it’s usually bad.
In 95% of cases (not a scientific number) agency spin-offs result in unfocused founders, fuzzy responsibilities and broken cap tables. A recipe for failure.
3. “Here is our fundraising advisor”
It’s actually OK to use consultants in the process of fundraising or market validation, but the VCs should never have to interact with them.
The moment I get approached by a consultant instead of a founder, I immediately lose interest. Fundraising is the founder’s job and if you hate doing it, your startup will fail sooner rather than later.
4. “Once we build the product we start selling”
Pre-seed investors love seeing a product ready to launch… right?
Wrong!
Investors love seeing a well-validated hypothesis first. Ideally so well validated that the customer validation process itself earned you first customers before you even started working on your product.
Note, this relates to everyone, also the R&D heavy projects. First talk to customers, then build. Never the other way around!
5. “Here is one more startup I’m working on”
Smart people put their eggs in many different baskets*
* not applicable to startup founders
You need to be 100% focused on your company. Both now and during the next 10 years. You’re not going to get funded if you work simultaneously on more than one project. And no, don’t even mention Elon Musk. You’re not Elon Musk. Also, he’s an idiot.
6. “We’re testing this product on our local market”
Founders from everywhere but US and China have a small market problem. They start locally and say things like “once we prove the model here in Finland / Bolivia / Burkina Faso / Philippines we immediately go to the US”. But it doesn’t work like that! Proving that it works in an obscure local market that you know well, where you can sell to your industry friends and get traction based on your reputation doesn’t prove that you can repeat the same model elsewhere. Getting it done on two local markets (unless those markets are California and NYC) still doesn’t prove you can be successful on a big and competitive market.
VCs are looking for global market leaders. Their math doesn’t work for local leaders. That’s why if you can’t take over a huge market quickly, it’s usually a “no”.
7. “Our CTO is a PM in a software house”
One of the main reasons to invest in an early stage team is the team itself and the belief that the founders will be capable on building and selling the initial version of their product by themselves.
If you outsource a critical part of your business like tech or sales or marketing (depends on the type of company what’s the most critical one), you’re admitting the founding team is not good enough. It’s an easy pass.
8. “Our advisor owns more than 1% of your stock”
It’s a great signal if you have industry leaders in your cap table as advisors / mentors. They should own 0.1–1% of stock in your company each, depending on how important they are and at what stage they joined.
It’s a terrible signal however if an advisor owns anything more than that. I’ve seen extreme cases of advisors owning 40% of company and more. It’s an absolute no go for investors.
9. “This is our NDA for you to sign”
VCs don’t sign Non-Disclosure Agreements for reasons Brad Feld explained in this 2016 article Why most vcs dont sign NDAs. If you ask for one, it shows you’re a newbie and haven’t done your research.
10. “We have no competition”
You always do. Think of competition as alternative ways of fulfilling the same need, not only other startups doing what you do. The competition to the first scooter rental platform was having your own scooter or walking (or public transport in the civilized world).
What makes you pass?
Are you a venture capital investor? Tell me what makes you pass by tweeting with a #whatmakesmepass hashtag.
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My name is Borys Musielak. I’m the founding partner at SMOK Ventures where we invest in top pre-seed founders in the Central and Eastern Europe.
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If you like what you read, take a look at our FAQ https://www.smok.vc/faq/ and reach out to me at borys@smok.vc or via twitter @michuk.
