Monday, 15 November 2010 10:11

How to convince venture capitalists NOT to invest in your startup

How to convince venture capitalists NOT to invest in your startup

I'm a firm believer that you can learn something from anyone.  So last week, when I had the opportunity to discuss a web site project with someone, I decided to hear him out.  After talking with him for 15 minutes, I realized that this was a startup that I simply wanted nothing to do with.  Here are a few "common sense" things to keep in mind when trying to raise capital through venture capitalists (aka angel investors):

1.  If you wrote your business plan as part of a school project, keep this your biggest secret.

If the first words out of your mouth include "business plan" and "I wrote it for a class project," you are going to throw up some flags right away. If you *did* happen to write your business plan as part of a college class, great, but when push comes to shove, make it seem like you wrote the business plan because you had a great idea, and not because you needed something to hand to your professor.

2.  Actually, avoid discussing your experiences in business school altogether.

If you're looking for a quick and easy way to discredit yourself, make it seem like you're fresh out of school.  Since you just graduated, you probably don't have much real-world experience... and you don't want to give people this impression.

3.  Don't make it seem like your startup is going to take off (and run) on fumes.

You've got to spend money to make money, and unless you're doing something illegal, you probably can't get around this point.  I wrote a separate post on this topic - what it takes to start a business - if you're wondering what I think it takes to start a business.  Any good business plan has solid financial plans ingrained into it, but the guy I was talking to seemed to be more interested in getting me to donate my web development skills to his project.  He went so far as to tell me that they haven't spent any money yet; they've gotten free help from an attorney, an accountant, and anyone else who was working on the project was doing so in exchange for "equity."

If you're targeting a LARGE audience, you'll need money for advertising.  When I brought this up, he said that they haven't raised any money yet, but they would "pull some together" if deemed necessary.   Be realistic.  Any startup is going to cost money.

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