Advice Investors Want to Give Founders, but Refrain From

While facilitating dozens of closed-door and public Startup pitch sessions and closely working with many investors, there are a number of suggestions that I have heard being discussed when the founders left the room after presenting their startups. I would like to mention some of the most common mistakes made by founders during pitches and add some context to them.

Too much of text in the pitch deck making the presentation hard to understand and grasp. Also, some founders just make it worse by reading the presentation content word by word.
Advice: Remember that you are usually provided limited time to pitch to investors given how busy they are. The more graphical the deck is, the better. Here is a sample format to follow. Try to rehearse your presentation before going to pitch so you don’t have to read out every word.
No clarity about Market opportunity- I have come across many founders who do not rightly understand their Total Addressable Market (TAM), Serviceable Available Market (SAM) and Serviceable Obtainable Market (SOM). Sometimes they exaggerate the same, sometimes they underestimate it.
Advice: Do your homework well before approaching the investors. Read more about TAM, SAM & SOM.
Confusing investors with your Equity dilution- Some founders try to play with a range than a concrete number on how much they want to raise against what % of equity (in case of equity investment). I have seen people quoting “I want to raise $100k to $200k against 10–20% equity.”
Advice: If you throw a range to investors, your homework is not complete and you don’t know precisely how much money you want to raise. You need to perfect these numbers.
Pressing too much on funding than value creation- Some founders just push their funding endeavors too hard, too early and often forget their real objective behind starting that venture.
Advice: Be clear on why you want to raise money. Investors just hate it when you are too funding-centric than being futuristic with your concrete plans to create value through your business as you grow it.
Not knowing your unit Economics- Some founders are so busy preparing to raise money and perfecting their pitch that they often forget to work on the Most Important Thing– Unit Economics. I have seen people fumble when asked about unit economics during their pitch.
Advice: As a founder, these things must come naturally to you without having to calculate/ recall when asked by investors. Unit economics are different for all the business segments. A SaaS company founder, for example, must know things like Customer Lifetime Value, Customer Acquisition cost etc.
Way too much salary drawn by founders or planning a drastic hike in salary after fundraising. The investors just hate that even though their venture is not profitable or having a hard time to sustain itself, some founders pay themselves too fat salary checks. In our pitch events, we make sure to ask about the salary drawn by founders.
Advice: Don’t pay yourself too high paychecks. If you think you are compromising your 7 figure salary by doing a startup, better not to do it. A startup anyway is a tough thing to handle and you run on the chances of going bankrupt any day. “Pay yourself lesser than most of your employees and be the first one to reject salary when times are odd in your startup”- a thumb rule I learned from one of our investors recently.
No clear idea on the use of funds- Imagine a founder coming to investors for raising money without knowing where this money shall be used- strange right? Many founders just think over the avenues where the money shall be poured into without brainstorming on how much!
Advice: Make a clear percentage (%) breakup of use of funds. For example, if I have to pitch, I will say “Out of our $100k ask, 30% shall go to Product development, 20% into Marketing, 30% in Team building and rest 20% in Distribution Channel development.”
So you are a part-timer, Hmmm- Some founders just want to play it safe by doing their Startup with a day job, some of them are able to pull it reasonably well- I mean that’s commendable, who would mind earning a stable income while doing the Startup but for most of the investors I have met so far or have ever worked with, it’s not the ideal way of doing business as you are not 100% committed to anything. So why should investors risk their money on such founder(s)?
Advice: You may sustain yourself well by playing safe but being a part-timer won’t ensure building a great venture. There are ways to sustain yourself with negligible money (that’s what founders do), so better be in the skin of the game by being full time while approaching investors.
Unprepared with the Future plan, not fully committed- Investors don’t like it when you go to them with short-term objectives and don’t have a concrete growth plan. Some founders are so blunt in saying that if their venture doesn’t work well in next 12 months, they will go back to their jobs. Do you expect the investors to give them money?
Advice: Just raising the money can never make sure that your venture is going to be successful. You should always go with a concrete plan to the investors and if possible Plan B as well. And for God’s sake show full commitment at least during your pitch as if your venture is everything for you- it actually is everything for the committed Founders.
Too high valuation, valuation on the basis of future projections- Some founders approach investors with such unreal valuation numbers and justification that is hard to believe. Well, I don’t mind it if they can justify that to the investors. The hard reality is that they themselves don’t know what they are trying to prove.
Advice: If you are serious about raising money, don’t overhype things and compare yourself with the unicorns of your industry while brainstorming your valuation. Be realistic about it and ready with your answer to investors Why?
No mention of the competition coz the competition does not exist- In today’s time, I can hardly think of a business segment where there is no competition for Startups. If you are tweaking an existing business model to call it a monopoly, you are either lying to yourself and investors or your research is not complete.
Advice: Spend enough time and take help of others to validate if you really have a unique value proposition which no one else has ever been able to deliver. Do not lie to investors if you are not clear about the competition. Investors are smarter than you, when they do their research, there is no escape.
Twisting the numbers, lying about traction- Once we came across a founder who lied about the user base of his portal while pitching to our investors. When asked to show his website’s backend, he tried to manipulate things but we brought him to show his cards. A simple search query revealed redundancy in his database. Not to mention, what happened next.
Advice: It’s acceptable if you are not doing great numbers, the investors look into so many things all together before deciding to invest but twisting the numbers shall land you in trouble- don’t do that.