Raising capital: The top 10 lies told by entrepreneurs

Entrepreneurs, especially those who are after some capital, tell lies. Here are the top 10. Raising capital is tough. The success rate in Australia is about 2%. To be successful you’ll need to have a good plan and a pitch that will have the investors asking for the next meeting.

For anyone who’s been in front of investors, you know how daunting the experience can be.

I have been looking for information about pitching skills and came across the ‘Ten Lies’ by Guy Kawasaki from Garage Technology Ventures (garage.com), a US based venture capital company. I’ve added comments based on my own experience.

The top 10 lies

There’s a fine line between optimistic and enthusiastic opinions and actual lies. It’s interesting that Kawasaki has labelled the following as ‘lies’.

The message…

Don’t use these lines in your pitch.

#1 Our projections are conservative

Everyone claims that this means they will do better, that they have taken a very conservative approach.

#2 ‘Gartner says our market will be $50 billion by 2009.’

There’s nothing wrong with quoting the source or the number but you need to go a step further and talk about your TAM – that’s your Total Addressable Market. What segment of that market will you tap into and how much is it worth?

#3 ‘Boeing will sign our contract next week.’

Everyone is talking to everyone in this business. Unless you can back up statements like this with a letter from the CEO of Boeing, just don’t say anything. The investor won’t believe you and your credibility will suffer.

#4 ‘Key employees will join us as soon as we get funded.’

And pigs will fly as well! Much the same comment as above.

#5 ‘No one else is doing what we do.’

This may sound harsh, but you probably haven’t done enough digging. It’s the same as saying ’we have no competition’. FATAL.

#6 ‘Several firms are doing due diligence.’

This one does you no good at all. Investors know their market. They know what is happening and what their colleagues are looking at. This is not a smart negotiation tactic.

#7 ‘Oracle is too slow to be a threat.’

You’re a very tiny company. Be careful about underestimating the power and resources that very big companies can bring to the market.

#8 ‘Beta sites will pay to test our software.’

More like you will pay them to test your software or give it to them for nothing. Consider how cautious your potential customers are of untested products.

#9 ‘Patents make our business defencible.’

Patents are important, but they will not protect your business.

#10 ‘All we have to do is to get 1% of the market.’

Entrepreneurs are getting smarter about this one, but I still hear it in different forms. Too many entrepreneurs simply pull a ‘market share number’ out of the air and quote it to investors. Again, destroys your credibility.

In the next blog, I’ll balance the story with the ‘10 lies told by investors.’

Happy hunting

Gail Geronimos, while working in a University of Queensland laboratory in the 1970s, teamed up with a colleague to boost her meager income by flogging army over-coats and boots at a suburban flea-market.  That was her first taste of entrepreneurship. From a career in science Gail teamed up with a colleague and established Achaeus to help entrepreneurs develop their businesses. She has presented workshops and delivered speeches throughout Australia, New Zealand, South Africa, Malaysia and Hong Kong.