Editor’s note: This article was first published in June 2013. The figures, including 900 million Android users, and the description of Waze as the latest startup bought by Google, reflect that month, when the acquisition was announced.
Michael Cohen, managing director of Mati Ra’anana, a venture capital firm that connects young tech entrepreneurs with investors willing to back their business ideas, has put together 5 phrases he believes scare investors off or make them distrustful.
We’ve talked a lot about what an investor looks for in an entrepreneur’s project, and the truth is that desperation to raise that vital funding for our idea is what can make us come across as desperate. That’s why most meetings between entrepreneurs and investors end in failure, as Cohen acknowledges. So here are the 5 phrases to never use in front of an investor:
1. “Everyone is going to want…”
A very dangerous phrase, because there are many consumers and each has their own preferences and tastes. Even our own subjective feeling doesn’t reflect how the whole market feels. There’s no situation in which everyone will want the same thing.
Now, the more contrarian readers will be looking for a way to argue with this point. I imagine some have already thought it isn’t true, since everyone wants shoes, everyone wants a mobile phone these days, a bed, and so on.
The thing is, we’re almost certainly not going to offer our investors something everyone will want; otherwise we’d be looking at the innovation of the century. I’m not saying it’s impossible, but as a rule, using the phrase “everyone is going to want our product” only shows that we’re terrible at market research and at finding our real target audience. According to some research, 30% of investors say entrepreneurs have a lot of trouble identifying their target market, so when an entrepreneur is clear about it, investors appreciate it.
2. “We’re going to reach our first million…”
OK, you haven’t even started yet, so you have no idea when you’ll reach your first million (euros or users). Cohen says this expression comes up a lot among entrepreneurs developing a mobile app.
To give you an idea, there are 900 million Android users. To reach our first million downloads and make the company profitable, we’d only need to win 0.12% of those users. Put like that, the figure is encouraging. But the investor has another figure: 95% of apps never reach a million users. How many apps do you have on your phone, and how many do you use every day?
Don’t speculate with the investor about how long it will take you to get your first million. Instead, tell them how you’re going to get your first 10,000 users, and how good the app will be, good enough for those first 10,000 users to bring in everyone else up to the million. And you know how it goes: once you get your first million, the rest comes on its own.
3. “We’re unique”
Why do you think you’re the only ones? Business opportunities come up every day all over the world. If your idea is good, others have probably spotted the opportunity too, or are probably shaping something similar. Don’t waste time trying to convince anyone that your idea is unique, even if it were true.
Spend your time explaining the strategy you’re going to follow, to the point where it doesn’t matter to you if similar ideas appear. Take Waze, the latest startup bought by Google. It wasn’t unique. In fact, there are hundreds of free navigation apps, but Waze was the only one that, besides being a navigation app, was also a kind of social network for drivers. That wasn’t a unique idea either, but it was apparently the best executed.
4. “I’m not putting in any money, but I’ll work a ton of hours”
An investor will always feel more at ease knowing the entrepreneur is also risking their own money if the business goes badly. It’s pure psychology, even if the amount is symbolic. Put yourself in their shoes and imagine two entrepreneurs in front of you, one risking their own money and the other not. Off the top of your head, which one would you trust more? The one with nothing at stake could get bored or tired tomorrow and walk away from it all. The failed experiment costs them very little, while the other has one more reason to fight, even if it’s just the selfish wish not to lose their own money.
5. “My brother, my cousin… will take care of that”
Investors expect the company to fill the positions it needs based on ability, not family ties. To these investors, family businesses don’t sound good, and that doesn’t mean your brother isn’t the most professional person in his field. Unless your brother or cousin is well known in that particular industry and already has achievements that could impress the investor, avoid mentioning relatives in front of investors.
Further reading
- When looking for investors, do we want capital or smart capital?
- The perfect business plan for raising funding
- From idea to business in 11 steps
- 7 crowdfunding platforms for finding funding
Featured image: Fredericknoronha, CC BY-SA 4.0, via Wikimedia Commons.
