How Do You Ruin Your Chances With VCs?
When “fake it till you make it” stops working
“I know that guy,” I whispered to Dave, the partner that was looking at the deal.
“Who is he?” Dave whispered back.
“I replaced him as VP Marketing at the company I was at. I didn’t know he was involved in this company. I’ll tell you about him after they pitch.”
It was just the CEO and David, the person I knew. David didn’t remember me, but I remembered him.
The CEO starts his pitch, and he introduces David as a marketing consultant he’s working with.
The CEO kept going with his pitch. David sat in a crouch-like position as the CEO continued speaking.
Every once in a while David would rise up out of his crouch, lift his right hand up to the sky, and then proceed to write something down on his notepad. It was quite a performance.
And it was game over.
I could see Dave slump in his chair. Dave, if you know him, is always pleasant and he always has a smile on his face.
Dave kept his smile intact, but he wanted the meeting to end fast. There was no way he was going to invest.
You Should Never Bring a Consultant to a VC Pitch
After the meeting ended, I said to Dave, “I knew you were out once the CEO introduced David as a consultant. I’m just curious why?”
“It goes to judgment.
“I actually like what they’re doing, but bringing a consultant to a pitch just is a major turn off. You saw the guy. He looked like a fool.”
Dave continued talking. “If we’re going to give a CEO money, we have to be able to trust the CEO. How can you trust someone who doesn’t see a problem bringing someone like that to a meeting like this?”
Of course, Dave was right. I’ve sat through some comically bad pitches working with VCs. I’d say that bringing a consultant to a pitch is near the top of the stupid things you can do as a startup CEO.
There are other stupid things you can do to turn off a potential investor. Including:
1. Not knowing what slides you’re going to present
“Here’s a slide that might work,” the CEO said.
Dave, the CEO, and I had just exchanged introductions, and then the CEO starts his pitch with that opening line.
Again it was game over.
How can you not know what you’re going to pitch? To quote Grand Slam champion tennis player, John McEnroe, “You cannot be serious!”
You have one chance to make a first impression with a potential investor, and you decide to look incredibly inept right from the start. There is no way to recover from that.
2. Lying to or misleading an investor
“Is Richard still with your company?” One of the partners asked the CEO at the beginning of his pitch. Richard was the VP of engineering.
“Yes,” the CEO answered quickly.
Again it was game over.
We had done a bunch of diligence on the company, and we had found out that Richard was leaving the company. We might have invested if the CEO had answered the question honestly.
You can’t expect to have an investor give you money if you are intentionally misleading. The Valley is a small place, and it’s pretty easy to find out when someone isn’t telling you the truth — especially when there is a question about a co-founder.
You’re much better off saying the tough truth. Remember, you are building a 7–10-year relationship with an investor, and relationships are built on trust.
Okay, let’s add one more…
3. Not knowing your numbers by heart
We were looking at investing in the C round of a company, and we had invited the CEO and his team to present to the partnership.
The meeting seemed to be going well when one of the partners asked the CEO, “What’s your breakeven revenue number?”
“I don’t know off the top of my head,” came the answer from the CEO. “I’ll have to get back to you.”
Again, it was game over.
This wasn’t an early stage investment where maybe you could forgive a CEO for not knowing what the breakeven revenue number. But a later stage company? C’mon, man.
There’s a set of numbers you should always know. You should always know your current burn rate. and you should know your breakeven revenue, and you should know how much money it’s going to take for you to get to cash flow break even.
Burn these numbers into your brain. It will serve you well with investors. More importantly, knowing your numbers will help you run your company.