This post was written by Michael Cohen, CEO of Mati Ra’anana, and Robin Lovell, VP of Mati Ra’anana, and a member of the fresh venture capital stewardship program; connecting young technology entrepreneurs to select investors.
Entrepreneurs often fail at their first investment meeting. Here are five statements that turn off investors, and should be avoided if entrepreneurs would like to acquire investment:
“Everyone will want”
Different consumers have different preferences and tastes. One’s own subjective sentiment, does not reflect the totality of sentiment for the entire market. There is no such thing as a situation where ‘everyone will want’ the same thing, and saying so is wholly inaccurate. Even basic needs like food, education and clothing, are consumed in various forms, and there’s no way a single offering can ever satisfy the preference of every consumer. Such statements are perceived by investors as an indication that the entrepreneur lacks an understanding of the target audience, and speaks to a shallow focus of the team. According to research, about 32% of investors point to a misunderstanding of the target audience, as the most critical mistake entrepreneurs make in their early stages.
“We’ll reach our first million by…”
“There are 900 million Android users, and all we need is half a percent to download our app in order to be profitable within the first year.” 95% of start-ups fail to get over the hump of enough early adopters to even get their startup off the ground. You probably remember the resounding failure of a company with a great vision to create and market an electric car, called Better Place. Every day in the app market, hundreds, and even thousands of new applications are being launched, all claiming to improve ‘this’ experience and to solve ‘that’ problem. Just ask yourself how many apps you have on your own phone, and how many do you use on a daily basis? Instead of telling investors what will happen after the first million users register for your product or service, focus on how to recruit your first users, and how to build up from there to your first million.
“We are the only ones”
Why do you believe you’re the only ones to have ever thought about this idea? Business opportunities present themselves to different people at similar times, all around the world. You better believe that if your idea is a good one, that other entrepreneurs have long recognized the opportunity, and are trying to develop a similar idea. Instead of saying ‘We’re the only ones’, explain to your investor why you’re the ones who can implement the best solution, can foster the most efficient business ecosystem, and will succeed in reaching the first million customers. In short, explain how you will become a successful startup company. Consider how Waze became a leader in navigation, and made their app, the premier social traffic tracking app on the market.
“I’m not willing to spend my money, but I’ll spend a lot of hours”
Investors expect the entrepreneur, who’s asking them to place their cash in a high risk endeavor, to be willing to sacrifice their own money (even if it’s only a token amount), above and beyond their brains and and experience. An entrepreneur looking for investment, should make sure they come to the table prepared with plenty of market research, a good business plan, and with the most elementary form of intellectual property, before even thinking about approaching an investor to ask for an initial investment.
“I can’t do it, but my brother …”
Investors expect the company to fill positions based on ability, and not on the basis of their familiarity with the partners in the company. Nepotism is seen as unprofessional and high risk in business. It’s not recommended to include relatives and friends in the business, unless they have the appropriate qualifications and/or experience.
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