I was asked recently for a list of things that annoy me in angel investment pitches from startups. I\u2019ve done this before, so there will be some duplication here. But here is my top 10 pitch fails list.\u00a0![\"\"](\"https:\/\/timsstuff.s3.amazonaws.com\/content\/uploads\/Top10-pitch-fails-300x267.jpg\")
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- Profits<\/strong>. Talk of profits, overestimated profits, the failure to understand that investors make money on growth, not profits; startups with high growth rates are rarely profitable; profits in high-growth startups stunt growth and reduce the odds of successful exit. That\u2019s why you need to spend other people\u2019s money, right?<\/li>\n
- \u201cI don\u2019t need no stinking projections.\u201d<\/strong> Surprises me how often I\u2019ve seen it. \u201cWe all know,\u201d the pitcher says in a cynical tone, \u201cthat all those projections are useless.\u201d And dismisses the idea, often with a wave of the hand. Or sometimes it\u2019s a holier-than-thou tone. But no. I need you to think though unit costs, realistic volume, the conceptual links between marketing spend and volume, what it takes to fund growth. I want to know that you know, roughly, that you\u2019re growth will take a ton of marketing spend, and that when you get to $20 million annual sales you are going to have a big payroll and overhead.<\/li>\n
- Expecting me to believe your numbers<\/strong>. You\u2019re damn right I want to see them, but don\u2019t expect me to believe them. I use them to guess how well you know the nuts and bolts of your business. But at the moment of truth, I\u2019m going to trust my instinct for what I think you can sell, and how much I think you can grow, given the stories you\u2019ve told me and the markets you\u2019ve carved out.<\/li>\n
- Discounted cash flow<\/strong>. IRR and NPV. Amazing how people can believe numbers that project the future based on a compounded absurdity of assumed sales, less assumed spending, multiplied by an assumed discount rate, five years from now. And yet, I see young people crushed because I wanted something that had a lower IRR than their thing. Y\u2019see, I didn\u2019t believe the IRR either way. I went with the people and the market. This is actually a particularly annoying subset of the point above it.<\/li>\n
- The annoying myth that nobody reads business plans<\/strong>. Big mistake: confusing the obsolescence of the big pompous formal use-once-and-throw-away business plan of the past with not wanting or needing planning. Ask the two faces of lean startups, Eric Ries and Steve Blank, whether startups need to set strategy, tactics, milestones, metrics, and essential projections for revenue, spending, and cash, and they\u2019ll say the equivalent of \u201cyes of course.\u201d But they are (mis)quoted often as saying don\u2019t do a business plan. What they mean \u2013 ask them \u2013 is don\u2019t do an old fashioned business plan. Keep it lean, revise it often, and manage with it.<\/li>\n
- Knowing everything<\/strong>. Sometimes people think investors want founders who know everything, answer each question no matter what, and are the world\u2019s leading expert on any possible subject to come up. No. I want people who know what they don\u2019t know, and aren\u2019t afraid to be not certain.<\/li>\n
- I don\u2019t want people who get all defensive when challenged<\/strong>. The win is in the relationship, long term. I can\u2019t tell you how many times I\u2019ve seen private discussions between investors, after a pitch, go negative for somebody who investors feel \u201cisn\u2019t teachable.\u201d It\u2019s easier to work with people who listen, digest, than with people who think every doubt is a challenge to their leadership and authority.<\/li>\n
- The small piece of a huge market<\/strong>. No, please, don\u2019t ever tell me that your $10 million sales figure is realistic because it\u2019s only one percent of a $10 billion-dollar market. Or 1\/10th percent of a $10 billion market. That logic never works. Build your forecast from the units up, not from the top down.<\/li>\n
- Oversharing the science or technology<\/strong>. I want to hear about the business, not the physics, not the biology, not the chemistry. Pitches and plans are not the right place to show off all of your knowledge.<\/li>\n
- Not needing the money.<\/strong> If you don\u2019t need the money then don\u2019t seek investment. Own it yourself. Never seek outsider money you don\u2019t really need. People who can live off of their generated cash flow are never going to exit<\/li>\n
- (bonus point) Stock words and phrases like \u201cgame changer\u201d and \u201cdisruptive.\u201d<\/strong> Don\u2019t tell us that you are either that. Cross your fingers, and hope we tell you that you could be.<\/li>\n<\/ol>\n
This is another of my Quora answers. The original is at: What are the things that annoy you when entrepreneurs pitch to you Angels and VC?<\/a> And someday I\u2019m going to answer the question what annoys me about my fellow investors. Because writing these items generates a thought about that side of the table too.<\/p>\n<\/p><\/div>\n
- \u201cI don\u2019t need no stinking projections.\u201d<\/strong> Surprises me how often I\u2019ve seen it. \u201cWe all know,\u201d the pitcher says in a cynical tone, \u201cthat all those projections are useless.\u201d And dismisses the idea, often with a wave of the hand. Or sometimes it\u2019s a holier-than-thou tone. But no. I need you to think though unit costs, realistic volume, the conceptual links between marketing spend and volume, what it takes to fund growth. I want to know that you know, roughly, that you\u2019re growth will take a ton of marketing spend, and that when you get to $20 million annual sales you are going to have a big payroll and overhead.<\/li>\n