Ivan from Navigate Ventures
Navigate Ventures in the News
Six Phrases Founders Should Avoid When Pitching to VCs
Dear Investors, Friends, and Family,
Ivan Nikkhoo, Managing Partner @Navigate Ventures – Contributor
Building Trust Between Founders and Investors
Building trust between founders and investors is essential for securing investment and support through various growth stages. Honest, clear, concise, and transparent communication creates this trust, especially when founders present realistic plans and projections and openly discuss risks.
Yet, many founders fall into the trap of overly optimistic, or outright exaggerated pitches. While these may offer short-term gains, they often damage long-term credibility and investor relationships.
Across 1000s of pitches that I’ve attended over many years, a handful of misguided founder claims consistently recur. Here are some of the most egregious – to be avoided at all costs.
“These Are Very Conservative Numbers.”
The best way for founders to establish credibility with investors is to set realistic expectations and meet or exceed them.
Unfortunately, I rarely see projections that are even close to accurate. When people pitch to me and claim that the high-flying numbers on their slides are in fact conservative estimates, they automatically lose credibility. The numbers should be factual and evidence-based, not hyperbolic or hypothetical.
As an investor, the conservative claim automatically implies that expectations should exceed the projections. This is bad news for all parties. The founder’s job is to convince investors and establish credibility and confidence, not get them overexcited. Even if you succeed in the latter, you’ll miss expectations further down the line and damage trust.
“We Are Pre-Revenue Now & Going to $300M in Two Years.”
Every early-stage company has to find product-market fit and prove its repeatable sales model. Making overinflated claims about future revenues before you’ve done this hard work is a misstep that suggests a lack of experience in the startup world.
Instead, VCs want to understand your go-to-market strategy, how you plan to acquire customers, how much revenue you’re confident you can generate per customer, how you plan to expand revenues with each customer, and how you’re going to aggregate and grow that revenue.
Remarkably, these lofty revenue projections aren’t just the preserve of pre-revenue businesses. I’ve met with business leaders who’ve been toiling away for more than a decade and yet still insist that their modest revenues are about to skyrocket in the next 12-18 months.
Unsurprisingly, I don’t believe them. This type of entrepreneur loses credibility with experienced investors very quickly.
“We Have No Competitors.”
When an idea is good, it’s naïve to think that you’re the only founder who has thought of it. There is always competition, and a good idea in a lucrative market dictates that the competition will be well-resourced because others will be seeing the same opportunity as you.
Even in the event that you genuinely can’t find other direct competitors, the status quo is still a tough adversary to dislodge.
To build successful companies, founders have to understand their customers’ behavior and how they’re currently choosing to do things. If they’re running a business, they must be running it using something, even if it’s manual paper-based processes or legacy systems.
Founders who overlook this risk undermining their credibility with VCs, because it suggests a lack of understanding about the problem they’re supposed to be solving, raising questions about the viability of their go-to-market strategy. Also, in a world of smart entrepreneurs and huge amounts of available capital, if there indeed are “no competitors”, it is probably because it is not a backable idea!
“This Is a $1 Trillion Market, and All We Have to Do Is Capture 2% of It.”
Framing the growth journey in terms of market share capture betrays a lack of understanding about what it takes to identify the target customer, develop a go-to-market strategy, acquire customers, and grow a business.
You need to clearly distinguish between the overall market, the total addressable market, and the portion of the market that you’ll be targeting in the near-to-mid-term as you look to scale.
But what investors really want to hear is evidence that you understand your specific unit economics.
In addition to finding product market fit and demonstrating a repeatable sales model, you have to hire a sales team and train them, create a pipeline and begin acquiring customers, and deal with the challenge of customer onboarding and customer success. Until you get started, you really don’t know how long this journey will take or what unforeseen complications will emerge along the way. At which point, your market share projections may start to sound very silly indeed.
“The Company Will be Worth Over $1 Billion in a Couple of Years.”
If this were true, investors would question why the founders hadn’t mortgaged their homes and their families’ homes and invested all of the proceeds in their company, as the opportunity clearly promises outsized returns!
No one can predict what a company will be worth in the future. Anyone who claims otherwise is selling snake oil. The market is the determiner, and there are so many external variables, even when the company has a great product and sound strategy.
“In Three Years We’ll Be Selling to Big Tech.”
Good companies are never sold. They’re bought. This wisdom holds even when talking about the most cash-rich acquirers on the planet.
Founders need to think about company-building in terms of future success, not future sales potential. Your goal is to build a company that’s good at what it does, valuable to its customers, sustainable and able to stand on its own feet, regardless of whether acquirers are knocking at the door.
Once a company is successful, people always want to buy it. Whereas if you build to sell, and acquirers don’t show up, you’re dead in the water.
Conclusion: Serve Your Investors, Don’t Try to Impress Them
Finally, remember that your job is to serve investors with the information they need to make an informed decision. Overstating your case, stretching the truth, presenting unqualified assumptions as facts – all of these things will be counterproductive given that smart investors always carry out extensive diligence before writing any cheques.
Honesty, integrity, authenticity, and credibility are fundamental qualities that VCs seek out when meeting founders and making investment decisions. So make sure that these qualities are brought to bear in your pitch.
About the Author
Ivan Nikkhoo is the Founder & Managing Partner at Navigate Ventures, an early growth fund focused on solving the growth capital gap, between series A and Growth rounds, for B2B Enterprise SaaS companies outside Silicon Valley, offering an accelerated path to DPI.
Ivan Nikkhoo
Managing Partner
Navigate Ventures