AI-generated summary
Securing an investor for your startup is an exciting milestone, but it comes with challenges that require careful navigation. Investors are interested in many projects and hold significant leverage, so how you communicate with them from the outset can greatly impact your chances of success. Avoid certain phrases that could undermine your credibility or create skepticism. For instance, framing your need simply as “I need someone to fund my project” overlooks the investor’s expectation for returns and growth, while presenting your venture as “just an idea” fails to impress seasoned investors who prioritize execution over concepts.
Other missteps include admitting to working on the startup part-time, requesting lengthy development periods without a minimum viable product, lacking a clear business model, or overestimating your market share without substantiation. Additionally, asking what you receive beyond funding may alienate professional investors who primarily provide capital. Demanding confidentiality agreements, insisting on fixed valuations, or claiming your startup carries no risk also signal poor judgment or naivety. Ultimately, transparency, realistic expectations, and demonstrating commitment and progress are key to building investor confidence. By avoiding these common pitfalls, founders can start investor relationships on a stronger footing and enhance their prospects for successful funding and growth.
An investor may be interested in your project, but also many others, so even if it hurts you to admit it, you will always go with a sale
So you’ve arranged to get an investor to keep an eye on your startup, huh? Congratulations! It’s a great opportunity, no doubt, but be careful: be very careful. An investor may be interested in your project, but also many others, so even if it hurts you to admit it, you will always be at a disadvantage.
And there are certain phrases that will increase that disadvantage from the start. Here are ten things that, with exceptions, you should not tell an investor if you don’t want to start off on the wrong foot:
1. “I need someone to fund my project.” Let’s see, let’s clarify this as soon as possible: if you have a business, you need an investor, who will not only ask you to recover the money he has put in, but also to multiply it as best as possible. If you are looking for someone to leave you the initial money and then return it, go to a bank or your close environment. And if you want someone to give you the money just because… sorry, patrons disappeared in the nineteenth century.
2. “For now it’s just an idea…” High. Stop. Stop, for God’s sake! Any investor knows a phrase by heart. “The important thing is not the idea, but the execution.” If you need a professional investor, talk to them again when you have something developed.
3. “I make it compatible with my other job.” If your project is not yet profitable and you don’t have savings to spare, you may be making it compatible with another job. We will not be the ones to question that; In fact, we think it’s very good, but understand that an investor needs much more. If you’re going to gamble with your money, they’ll want you to put in 100% of your effort.
4. “We need three years of development.” Your project is likely to have complex technology and you need some time. However, the investor will tell you that it is always better to take out a minimum viable product (MVP) as soon as possible and make changes to it. If you can’t do that, wait until you have the product to ask for professional investment.
5. “We don’t have a business model yet.” Let’s face it: we all know startups with millions of users that don’t yet have a clear business model. This can sometimes work, but usually, an investor will want to know how you plan to make money.
6. “The market is huge, we only need 5%.” Okay, you’re in a gigantic market and you’d survive by taking only 5%, even 1%. But do you know how many startups have made that same calculation? And do you know how many will survive two years from now?
7. “What do you give me, besides money?” Be careful with this question: if you are in an initial phase, perhaps your investor can provide you with know-how, contacts or even some daily work. But if you go to a professional investor, they will only give you money (is that not enough?).
8. “You have to sign a confidentiality agreement.” Unless your project is very specific or you have a very specific technology, it doesn’t make sense to require you to sign a confidentiality agreement.
9. “Valuation is non-negotiable.” If you utter this phrase, we really hope you’re the next Steve Jobs. If not, bad business: first, because this is a game of two and you always have to negotiate; second, because that pride will not give you a good image.
10. “There is no risk.” Let’s be clear: all startups have their risk. If you tell an investor that they won’t take any risks with you, you’re probably lying to them. Also, if it’s true that there’s no possible risk of going broke, why don’t you get the money in a loan, instead of going to investors and giving them a percentage of your company?
