Having funded more than 25 companies, I can tell you some reasons why I chose not to fund some entrepreneurs:
1. Too early in the startup cycle
If you’re looking for money, don’t come to me if you’re still in in the ideation or seed stage of the startup cycle — especially if you have not built a brand name for yourself as an entrepreneur with a track record. If you come to me looking for capital and you’re a programmer asking for money to develop your app, I am going to wonder why you haven't done it on your own sweat equity. If you’re a software developer looking for cash to build and market your revolutionary software platform, at the very least have the beta stage of your product ready. Why should I fund your seed stage when it only requires brainpower? You’re smart. This stage requires no money, only desire and discipline.
2. Incomplete management team
I realize some startups are funded with incomplete management team – especially in high tech. But don't be confused. Certain high-tech startups require only “tech geeks” in the early stages. The cost of funding a digital product is often substantially lower because it doesn’t require huge capital to get into the marketplace.
3. Small market size
I have turned down entrepreneurs who couldn't tell me the size of their target market. If you don’t know it, how am I supposed to figure it out? I'm not a difficult guy: even if your market size is small initially, explain to me how you could build it into a bigger market or expand into other markets.
Don’t give me some percentage of some huge market number. For example, don’t say, “We are a startup addressing the incredibly huge B2B sector, which is a one trillion dollar business and our plan is to own 1% of the market within three years or less.” I’m exaggerating here but I hope you see my point. This statement sounds incredibly silly. But you’d be surprised how many entrepreneurs have made similar statements to me.
4. Poor presentation skills
If you can’t present well to me while raising capital, how are you going to convince your market to buy your product? Sure, I understand: it’s a different kind of a sales pitch for money, but if you don’t present well to me, I am not that confident you will present well to your customers. And please, don’t tell me a bunch of mumbo-jumbo tech talk. Just tell me your startup story in a way that even my 80-year old mother would understand what you’re trying to do.
5. Lack of enthusiasm and confidence
Look — I‘m not looking for you to jump up and down and scream with excitement when you present. But show some enthusiasm for your startup. You’re going to need the same type of enthusiasm to win customers too. No enthusiasm — no capital from me — and no customers either for you. The psychology of the venture capital mind and the psychology of the entrepreneur mind is the same: we all like entrepreneurs who are enthusiastic about what they do.
6. Exaggeration and more exaggeration
Do not exaggerate your accomplishments or even your startups accomplishments. I can find out quickly whether you’re telling the truth. I like you telling me startup stories but they have to be factual stories. Don’t tell me you, or the startup, has done something when in reality you haven’t at all, and you’re just saying this to get my investment dollars. Besides if you’re telling me something cool about your technology and it isn’t true, I am going to know about it because I have been in high tech most likely longer than you have. So keep it real.
7. Arrogance is not confidence
Nothing turns a venture capitalist off faster than arrogance from an entrepreneur. I want you to be confident when presenting but not arrogant. Don’t act like you know everything and assume we know nothing. If I tell you to speed up during some of your presentation because I’m familiar with the sector and the numbers, don’t make me listen to it. I’m a busy guy. Get to the point.
Don’t interrupt me if I am talking. Let me talk too. Answer my questions real-time — if I interrupt your presentation and ask you something. Don’t tell me you'll answer my question later in the presentation or for me to look it up in your business plan. Seriously. I am not making any of this up. Entrepreneurs have done this during their presentations. Oh, yeah, one more thing. If you act arrogant while pitching me for money, give me one good reason why I should invest into your arrogance?
8. Lack of frugality
I don’t care if you’re familiar with the lean startup or Toyota Production System (what I call the Taiichi Production System) because I am looking for you to be frugal in your startup. Don’t ask me for money so that I can improve your personal lifestyle because you worked so hard on your startup and sacrificed so much.
When I ask you for your Use of Proceeds (in other words how you will spend my money), I don't want to see substantial increase in your salaries or repayments of the loans you made to the company. Don’t laugh. I’ve seen this more than once.
9. Lack of character
If I ask you for personal references, please don’t give me your mother as a reference. I’m sure you mom is great but I need references from awesome people who are going to say something like this … “Damir, I’m glad you called. Yes, I am a reference for _______________, and I have worked with her for _______ years and I can tell you that she is absolutely a rock-star entrepreneur for the following reasons: ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
(Your reference should be able to give numerous examples of why I should invest into you and your team. They should be credible sources too. I don’t want a call from someone in jail giving you a reference. I'll know they're calling from jail because it will be a collect call.)
10. Lack of management magic
Your team had better have team harmony. Most VC’s understand team harmony as well as world-class athletes in team sports such as soccer, baseball, rugby, basketball, cricket, American football, etc. Without team harmony, there is no management magic.
I have been in too many entrepreneur presentations where one entrepreneur hogs the microphone and talks and talks and talks and talks and talks — while others on the management team just sit there like dummies, filling out the chair seats for the entire presentation. Whoever you bring to the investor meeting, they better have a part in your investment play to get money from me. And it better not be just a line or two either. I’m not stupid. I’ve written plenty of film scripts as a hobby, so I to know that every character, no matter how small their part, makes the movie magic. The same goes with startups.
11. Lack of vision
Most venture capitalists are visionaries themselves. You better have a crystal clear vision when you pitch for their money — and mine too. If your vision is blurry, how can I see it then?
You would be surprised how many entrepreneurs have pitched me for money with their visions blurred. Look — most venture capitalists are not stupid. They may not know your domain or sector but we are all good at instinctively seeing the vision of the entrepreneur mind.
If you’re startup vision is blurry, our vision will be blurry. I have been in numerous entrepreneur pitches where I saw the startup vision clearer than the entrepreneur. It wasn’t just because I'm a smart guy. It was because I'd been exposed to your particular space and have been analyzing the evolution of the market myself on my own time and dime — and that is one of the reasons I let you pitch me. I wanted to see if your startup vision was the clearest of them all — so that I could fund your entrepreneur mind.
To be continued …
An entrepreneur and investor, with more than 25 years experience, he's worked with ventures in the technology, internet, media and publishing, entertainment, energy, and manufacturing sectors raising more than $300 million in capital for various companies and investing more than $50 million into startup and emerging ventures. He's sat on the boards of 11 companies, served as editor-in-chief of Futuredex, a private equity magazine. Follow Damir on Google+