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8 Things never to say to Investors when seeking Funding

10 things not to say to Investors as a Startup seeking funding

As a tech startup founder, you want to make a good impression on investors. However, some things you say can ruin your chances of getting funded.

Here are the 8 things you shouldn't say, and why:

TLDR: Never say these to an Investor when seeking Startup Funding
  1. We're the next <Insert Unicorn>: Comparing your startup to giants like AirBnB or Uber shows a lack of understanding of your unique value.
  2. We only need 1% of the market: Aiming for 1% often means getting 0%. Target a specific, smaller market.
  3. Our exit strategy is to be acquired: Early investors prefer a focus on building a great company.
  4. We have no competition: Acknowledge and understand your competitive landscape.
  5. Forecasts are conservative: Provide realistic, aggressive estimates instead.
  6. Sign an NDA: Investors usually won't sign NDAs due to legal risks.
  7. Build it, and they will come: Show your business sophistication with a solid marketing strategy instead.
  8. Be Honest: Never lie to investors; honesty maintains credibility.

1. We're the next <Insert Unicorn>

Comparing your startup to big names like AirBnB, Uber, or OpenAI doesn't impress investors. It shows you don't understand your own business well. Instead, focus on what makes your company unique and why you will succeed.

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Fun Fact to remember when Seeking Funding:

Unicorn startups are worth over $1 billion. They are rare because they have a unique market fit, strong business models, and can grow quickly. Less than a fraction of 1% of startups become unicorns. As of 2024, there are fewer than 2,000 unicorns worldwide, showing how hard it is to reach such high values.

2. We only need 1% of the market

This sounds easy, but it's a common mistake. Investors know that aiming for 1% often means you'll get 0%. Instead, target a smaller, specific market where you can achieve a meaningful market share.

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Pro Tip for Seeking Funding

Speak the investor language and do some homework on your market size:

  • TAM shows the full market potential for your product or service.
  • SAM narrows it down to the portion of TAM you can target.
  • SOM is the realistic market share you can capture.

Investors use these metrics to gauge the growth potential and scalability of your startup. Highlighting these helps investors understand the market opportunity and your strategic focus.

3. Our exit strategy is to be acquired

Early-stage investors don't want to hear about your exit strategy. They want to know you're focused on building a great company. When asked, simply say, "I'm focused on building a great company. The exit will take care of itself."

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Fun Fact for Seeking Investments

 Most startups face tough odds: about 90% fail, with 70% going belly up within 10 years. Of the successful ones, less than 10% get acquired, and a tiny fraction—less than 1%—go public through an IPO. Mergers also play a role in their lifecycle.

4. We have no competition

Every startup has competition, even if it's just the old way of doing things. Instead, show that you understand your competitive landscape and how you plan to stand out.
We-have-no-competition-Things-never-to-say-to-investors-when-seeking-funding

Pro Tip for Seeking Funding

Better to show you understand the market by addressing:

  1. Direct Competitors: Companies offering similar products or services.
  2. Indirect Competitors: Businesses with different solutions that meet the same need.
  3. Status Quo: Customers continuing with their current solution or no solution at all.

5. Forecasts are conservative

Investors don't trust claims of conservative estimates because they're used to startups missing targets. Provide realistic, aggressive estimates instead, as investors will likely reduce them anyway.

Forecast-numbers-are-conservative-Things-never-to-say-to-investors-when-seeking-funding

Pro-Tip for Seeking Funding

Keep your financial projections clear and reasonable. Showing a cash flow of $250K at year-end is more effective than $239,816.57. Use numbers to build confidence, not add confusion. Simplicity shows your level of business maturity.

6. Investors Must Sign an NDA 

Investors typically won't sign NDAs because they see many pitches and don't want legal risks. Be open with your information; the chances of a competitor using it against you are slim.

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7. Our PLG approach is "Build it, and they will come"

This means you don't have a real plan to acquire customers. Investors expect a solid marketing strategy, so develop one. We provide early-stage CMO services to create a winning marketing strategy.

build-it-they-will-come-Things-never-to-say-to-investors-when-seeking-funding

8. Be Honest when Seeking Funding

Never lie to investors. If you don't know the answer to a question, say, "I don't know, but I'll find out and get back to you." Lying destroys your credibility, and you can't get it back.

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Seek Funding from Investors with Trial & Error

Increase your chances of securing funding by avoiding these common mistakes. Highlight your company's strengths, understand your numbers, and be transparent with investors.

Remember, it's okay to make mistakes as you refine your pitch. With practice, you'll improve and get closer to your goal.

Additional Reading for Early-Stage Founders

Frequently Asked Questions

Why seek funding as a Startup?

Seeking funding helps accelerate growth, expand your team, develop your product, and enter the market faster. It provides the necessary capital to scale your operations and compete effectively. Additionally, investors can bring valuable expertise, mentorship, and industry connections.

Does it make sense to bootstrap my Startup?

Bootstrapping can be a smart choice if you want to retain full control and equity. It forces you to be resourceful and efficient. However, it may limit your growth speed and the ability to seize market opportunities quickly.

How much equity should I give to my Cofounders?

Equity distribution depends on the contributions and roles of each cofounder. It's crucial to have clear, honest discussions about expectations and responsibilities. Generally, a fair split reflects the value and effort each cofounder brings to the startup.

What are SAFEs?

Simple Agreement for Future Equity (SAFE) is an investment contract used by startups to raise funds. Introduced by Y Combinator, SAFEs offer investors the right to purchase shares in a future equity round. They are simpler and faster than traditional convertible notes, without interest rates or maturity dates, making them attractive for both startups and investors.

What is the Family, Friends, and Fools round?

The Family, Friends, and Fools (FFF) round is an early-stage funding round where you raise money from personal connections. These investors are often less experienced but believe in you. This round can provide initial capital but may come with emotional and relational risks.

What are the challenges of getting an Angel investor?

Challenges include finding the right angel investor who aligns with your vision, convincing them of your startup's potential, and managing their involvement. Angels may seek significant equity or influence, so clear terms and open communication are essential.

How can I grow my Startup Team?

Start by defining clear roles and responsibilities. Hire people who are passionate and skilled in areas where you lack expertise. Use your network, offer competitive compensation, and create a positive, inclusive culture to attract and retain top talent.

What are the popular Accelerators and Incubators?

Popular accelerators include Y Combinator, Techstars, and 500 Startups. Top incubators are Idealab and Science. Some Canadian organizations are Communitech, Velocity, and L Spark.

These programs offer mentorship, funding, and resources to help startups grow, often in exchange for equity. Research each to find the best fit for your startup.

How can ShoutEx help?

We provide fractional CMO and early-stage Startup advice to tech-based companies. Our focus is to help refine the product idea, develop MVP, and get Product-Market Fit. As a marketing agency we can also help you scale up your business and get past $5 million ARR.

Need some Startup Advice?

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