Dec 15, 2020
Don’t Let Greed and Envy Keep Investors From Funding Your Startup
Here’s my advice for turning a pitch into a proposed investment
Have you heard of Aesop’s Fables? Fables are short stories that aim to teach a lesson. Aesop, a slave and storyteller who lived in Ancient Greece between 620 and 564 B.C., wrote hundreds of fables, which often use animals to tell the tale. Today, I want to focus on one of Aesop’s fables that focuses on greed and jealousy.
The story is titled “Avaricious and Envious” and goes something like this. Two neighbors came before the god Jupiter and prayed to receive their hearts’ desire. One was full of avarice (greed) and the other torn by envy (jealousy).
To torture them both, Jupiter said that each could have one wish — but whatever he wished for himself, his neighbor would get double. The greedy man immediately prayed for a room full of gold. He was delighted — until he saw that his neighbor had two rooms full of gold.
The jealous man saw how Jupiter’s wishes worked. He didn’t want his neighbor to have any joy at all, so he prayed that he might have one of his own eyes put out. His neighbor, then, would become totally blind.
The moral? “Vices are their own punishment.”
Yikes! Why, you may ask, am I telling you that fable? Avarice vs. envy is indeed a classic tale, and one that is pertinent for startups today.
Don’t get greedy
Too many startup companies ignore advice and make pitches with financial slides showing “hockey stick projections” — a type of “financial blindness,” if you will. What’s a hockey stick projection? Well, it’s an unrealistic forecast for future sales growth that looks something like this:
“We’ll actually be negative in Year One,” the enthusiastic CEO pitches to his potential investors. “We’ll break even in Year Two, and then in Year Three we’ll make ZILLIONS OF DOLLARS!! GADZOOKS! HUZZAH! SPEED THE WOMBATS!”
“Uh, like anyone’s going to believe that, or like, it’s really going to happen, like, dude/dudette” might be the most appropriate response by a would-have-been investor.
In other words, don’t get greedy, don’t be crazy with projections, don’t overestimate, and don’t put up incredible numbers. People will not only express disbelief, they will ignore you, even if you have a great idea. You have to be realistic about your market, your projections, and your “guesses.” It’s better (as they say) to be conservative than careless!
Growth is certainly your goal — but reasonable growth is easier to sell. Investors like to see you being both aggressive and conservative. How do you DO that? It’s almost like being told to be happy and sad at the same time. (Wait, I’ve felt that way, before!)
It’s okay to show a fast growth rate, or a big market capture — IF you can back it up with more than just an opinion or “guesstimate.” Too many presenters just state, “This is what I/we think.” Oh, really? And what qualifies you to just “state what you think” and then think I will believe it? (that’s what I’ve heard expressed by potential investors, in these moments).
The point is to show potential investors you are serious; you are determined; but, you are knowledgeable. Again, investors like to see you being both aggressive and conservative, but they insist on you being well-grounded in terms of your market, competition, and projections.
You have to show the trajectories of similar products/companies, show the similarities to your company/product (and the differences), and make them understand why the market will accept of your product/service at the rate you’re telling them it will accept it. Making people comprehend your growth — instead of making them believe it — is a whole different ballgame. You can try to make me believe it — I may, or I may not — but if you make me understand it and know why that growth will happen, well, then I’m on your side.
Don’t let envy cloud your vision
The “envy” part enters the picture along with your competition; comparing yourself to your competitors is sometimes a fruitless endeavor. It’s even worse when you say, “Well, I really don’t have any competition.” YES, YOU DO!
Even if you personally think, “Wow, there’s nothing like this out there,” believe me, there is something that is at least close enough that people will buy it instead of buying yours. Got it? Don’t “wish to be like ___________” (insert: Microsoft, Apple, Google, Tesla, etc. etc.); be yourself.
Be reasonable, and be your own guide, but accept the fact that something will compete with you — again, keeping you from “hockey-sticking” your sales. And what about distribution channels, and sales management, and pricing? Well, again, don’t get carried away with details. After all, a pitch is usually a “first date,” as they say, to find out if you’re compatible.
I’ve listened to thousands of pitches and have yet to see someone in the audience jump up and say, “Stop the presentation! I’m giving you a million dollars right now!” However, I have seen potential investors walk up to the presenter after the pitch is over and say, “I’d love to have a copy of your slide deck and talk some more with you and your staff. Are you available in the next two weeks?”
The individuals who are clear about markets, competitions, sales projections and plans are the ones who get asked for more information, and who get invited to meet with potential investors. Be one of those people — not the arrogant ones who think “no one can compete with us.” Besides, even if that is true, you won’t convince people of it!
So, heed the fable lest you go blind with ambition and stricken by greed and envy, only to fail.
A truthful takeaway
Stay reasonable and forthright and true — hey, wait a minute! Sorry to wax philosophic there and become “Shakespearean” — but what I meant to say is this: Tell the truth.
Back up the truth with facts. Be straight with your potential investors. Let them know you DO know your market, and you DO know your business, and you DO know your competition. Don’t be envious, and don’t be greedy. Know what you need versus what you want, and tell your story plain and simple.
If you’re upfront and honest about your business model and plan, and if you’ve tested it and tried it and gotten the best advice you can, you can convince investors. But you have to convince yourself first. And that’s a story — or fable — for another day.
Mark S Long has long experienced the intricacies of business incubation, acceleration, coworking spaces, makerspaces and other entrepreneurial assistance venues. UF Innovate supports an innovation ecosystem that moves research discoveries from the lab to the market, making the world a better place.
Originally published on IncubatorBlogger on December 15, 2020.
