5 things you should not say to an investor
While talking to potential investors, it is only natural to feel nervous and uncomfortable. Entrepreneurs who can keep calm and pitch their business, increase chances to come out with investments. But at times, entrepreneurs mistakenly say things that they shouldn’t say. Whether you’re pitching to investors, networking at conferences or chatting with investors online on MAGNiTT, there are specific things you should avoid saying at any cost if you are willing to give your company a fighting chance to secure the investment you’ve always dreamed of.
We lay out the 5 very fatal things not to say to potential investors.
Telling a lie
As simple as it sounds you should never lie. This is something that we learn as children and decide to apply to our adult years. However, it can be tempting as an entrepreneur to make your business look more appealing than it is when seeking investment. After all, this is the most important time of your life and you can’t ruin it when you’ve only been operating for just a few years. But lying will eventually backfires. Before making an investment decision, the investor will go through a prospecting stage and deep dive into to the company’s revenue, profit margin, market share, product performance and team structure. Through this research phase investors will get to know your business better than you think and will sooner or later identify any discrepancy in the information they receive from you. Lying about your business can discredit you forever from getting any type of investment. In the worst case, you might even face lawsuits due to fraudulent activities.
‘If you like my idea, sign an NDA’
Many entrepreneurs have invested so much into their business idea that the last thing they want to see is a newcomer steal, better their idea and even worse – get investment for it. That is how a few would try to convince their investor to sign an NDA (non-disclosure agreement) to prevent them from investing in their current or future competitors. By telling an investor to sign an NDA, you are limiting their opportunity to not only grow their portfolio but do their job. As much as you enjoy the freedom of being an entrepreneur you must understand that this applies to investors too. No matter how much an investor likes your idea, they will never be in for an NDA. Make sure to never put this on the table while discussing with a potential investor.
‘You are wrong!’
Having strong faith and confidence in your business is praiseworthy, but you should keep cool at all times when an investor criticizes it or makes suggestions. No matter how emotionally attached you are to your innovative product, you must always accept objective suggestions from third parties and later decide if you wish to act upon them. Chances are if an investor makes recommendations on your business model or product, they have industry knowledge and you should consider taking their comments into account. Beware; never tell an investor they are wrong. You might not only offend them but also destroy chances of getting investment. Successful investors take massive pride in their investment decisions and market knowledge. If an aspiring entrepreneur claims that they are wrong, it can hurt their ego terribly. Blatantly stating their mistake will push them to judge your business more critically and create a bad impression of yourself. A key tip if you disagree with an investor comment is to always begin your response on a positive note ‘That’s a legit concern, and this is how we plan on dealing with it…’.
‘Our plan is solid, and it will work 100%’
Veteran investors know that every single plan, no matter how solid they seem, can fail for a number of reasons. There are external factors in the market that you can’t control. That’s why being so certain about your plan’s success is indeed necessary yet not always wise. When you show such over-confidence, investors will think that you have put all your eggs on the same basket and if your plan A fails, there is no plan B. This can indicate they that might be looking at a high-risk investment, and you can’t blame them for not choosing to invest in your business. Therefore, you need to make a plan A, B, C and even D. Being prepared is not only healthy for your business but also for you. It will help increase your credibility to the investor. Make sure not to forget to show them an exit plan. The more you convince the investors about the security of their investment, the more likely they will consider your business in their next investment plans.
‘We don’t have any competitors’
This is probably the most important tip of all. Telling an investor that you don’t have any competitors is not seen as a good sign unlike what you might think. Everyone has competition – if you can’t find it you only need to look further. For example, you might own a fresh organic fruit juice startup, but you still must consider soda companies as broader competition. Competition is widely considered as a healthy metric for your business. Not acknowledging competition as a startup founder can make you look not only unaware but also ignorant of your own business goals. Needless to say, that it will discredit you completely and that is not the image you want to convey as an entrepreneur.
You are now equipped to have successful and enriched conversations with any investor. When in doubt, always remember these five tips as it will help investors trust you and your business. Start the warm introductions on MAGNiTT through our messaging platform and share your one liner to the investor of your choice at the comfort of your home.