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What can an entrepreneur say in an investor meeting that instantly marks them as an amateur?

Posted by Scott Kirsner  September 21, 2011 02:35 PM

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Venture capitalists and angels all have an internal switch that can flip in a meeting with an entrepreneur. Something gets said that marks the entrepreneur as simply too green to invest in. Maybe the entrepreneur asks the VC to sign a non-disclosure agreement, or they introduce the CFO, who also happens to be their grandma. Call it the amateur alarm.

What sorts of things can trigger it?

I was curious, so I asked a group of Boston venture capitalists and angels this week. Here's what they said.

Larry Bohn, General Catalyst Partners

Saying they are completely unique, and that there is no competition. Groan.

Elon Boms, Launch Capital

1. Giving a large chunk of the company away to an advisor or a ghost co-founder / someone who adds zero value.
2. Cold-calling our office line.
3. Begging for meetings after we pass. Better is to ask why we passed, and what metrics we need to see to make an investment. Then following up when there is new news.
4. Paying to pitch [at a conference or investor gathering.] I HATE those types of events.
5. Hiring an investment banker for [help raising] a seed round.
6. Not conveying expertise in their market.

Dina Routhier, Massachusetts Technology Development Corp.

I think the most common thing that pegs an entrepreneur as an amateur is when they come in and immediately start talking about their amazing new technology, and forget to start the discussion with, "What big problem in the market am I trying to solve?" If they don’t start with the problem, then I know they are green.

That, and coming in without any type of pitch deck, just to "talk" about their company.

Ajay Agarwal, Bain Capital Ventures

For early-stage entrepreneurs (as opposed to growth stage), here are some things off the top of my head:

- Using a banker to raise money or sending in something over the transom (cold e-mail). Good entrepreneurs can always find a warm intro to a VC.

- Overplaying your hand. Excessive gamesmanship:

Entrepreneur: "Firm XYZ is about to give me a term sheet." VC: "Have you presented to their partners yet?" Entrepreneur: "Not yet, but they say a term sheet is coming this week."

- Good entrepreneurs are honest and transparent about the fact the process is competitive; but they never over-sell where the other firms are and they don't reveal who else is in the mix. Not sure why an entrepreneur would do this – only weakens their hand.

- Having random advisors participate in negotiate term
sheet. Good entrepreneur negotiates everything directly (seeks advice behind the scenes)

- Name-dropping. This is the worst. Usually it's not true (e.g., You are not really good friends with Zuck) and even if it is true, it doesn't help your case with the VC.

Chris Sheehan, CommonAngels

Entrepreneurs shouldn't overly use buzzwords to describe the business. "We have a cloud-enabled, big data, social graph platform..."

Rob Day, Black Coral Capital

1. Revenue projections in the hundreds of millions in under 5 years.
2. Refusing to describe even high-level conceptual info about the technology or solution.
3. Not having heard of an obvious competitor.
4.[Company's valuation expectations are] based upon a discounted cash flow analysis of a pre-revenue company.

Izhar Armony, Charles River Ventures

Too much focus on the deal dynamics ("I need a term sheet in 24 hours," "I am expecting a term sheet from this or that VC any day," "Also, this or that angel is in the deal"), and not enough focus on the product and how you're gonna build a big business.

Paul Maeder, Highland Capital Partners

- Projections labeled YR1 and YR2 instead of 2011 2012. If you aren't convinced of when it will happen, please don't ask me to join.
- "These projections are conservative." They always are, but rarely enough. Nothing is easy.
- "Finshed developing the product and gave ourselves a bonus becaus that was the hard part." Oh no it wasn't, dude. And products are never done.

Bill Warner, Co-Flow Investing

Sending out the message that they know everything, as opposed to having stuff to learn. The thing I'm most looking for is people who are thirsty to be learning.

Lee Hower, NextView Ventures

Asking [me to sign an] NDA is probably the most common.

Another is to try to dictate terms early in a first meeting. Occasionally you meet folks who within 10 minutes say, "We're raising $X at $Y valuation," before you've even had a chance do get to know them or understand their business at all. I don't mean that investors will dictate terms. It's all a negotiation, but it's very much putting the cart before the horse, in my opinion, early in a conversation.

Also, getting introduced through a service provider (legal counsel, accountant, etc.) usually comes off pretty JV. Even if it's a reputable firm, if that's the best intro an entrepreneur can get, it's usually a signal they're not very experienced. I think a lot of investors would almost prefer entrepreneurs try to reach out to them directly or try to meet at event.

Todd Dagres, Spark Capital:

1. "We outsource tech."
2. "We don't really have any competition."
3. "We have a verbal term sheet."

Joe Caruso, Bantam Group

They say, "We have three patents," when what they mean is, "We have filed three patents." BIG difference.

Jeffrey Bussgang, Flybridge Capital Partners

Here's one pet peeve of ours: when entrepreneurs show financial projections that in the out years (say, years 4-5) show a business that has fatter profit margins than Microsoft or Google. 50 percent EBITDA margins are reserved for monopolies, the mafia and Microsoft — not a brand new start up fighting for growth and leadership!"

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About Scott Kirsner

Scott Kirsner was part of the team that launched in 1995, and has been writing a column for the Globe since 2000. His work has also appeared in Wired, Fast Company, The New York Times, BusinessWeek, Newsweek, and Variety. Scott is also the author of the books "Fans, Friends & Followers" and "Inventing the Movies," was the editor of "The Convergence Guide: Life Sciences in New England," and was a contributor to "The Good City: Writers Explore 21st Century Boston." Scott also helps organize several local events on entrepreneurship, including the Nantucket Conference and Future Forward. Here's some background on how Scott decides what to cover, and how to pitch him a story idea.

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