No More Lies

Entrepreneurs when trying to get their start-ups funded by a Venture Capitalist (VC) often wind up making claims that raise eyebrows on the VC's side. From someone who's heard a lot of these presentations, here are a few statements that you should avoid if you're going to be making your own presentation to a VC.

Benjamin Disraeli stated that there were three kinds of lies–lies, damned lies and statistics. He was referring to the persuasive power of inaccurate but well-presented arguments. Entrepreneurs will do well to remember this, and some other obfuscating arguments, as they make their presentations to VCs.

Sanjay Anandaram tells you the common ones entrepreneurs make and his opinion on them, whilst providing a solution on how to approach it better:

"We have no competition"

Really? This statement demonstrates either of two (sometimes both, unfortunately for the entrepreneur) situations: (i) there's no market for the offering, or (b) there's an inadequate understanding of the market and competition— much like when the horse-drawn carriages were blind-sided by the arrival of motorized transportation.

"We are unique"

"Because we have placed ourselves in the top right-hand quadrant, and have thoughtfully placed everyone else in the other three quadrants. Of course, it is another matter that the dimensions of the grid chosen by us are absolutely pointless." 

Comparing product features, and more importantly, benefits, against the competition, is a good starting point for developing a unique position.

"There's a huge need in the market"

"Because I read a report in a magazine by a consulting company, about how big the market for clean water is, I surmise that I can build a Rs 100 crore company selling bottled water." 

Without talking to customers (i.e., those who actually use the product, not just talk about it) about why they would buy it, what they would pay for it, what specifically they seek when buying a similar product, would they prefer this product over other such products, and so on, it is hard to convince anyone about the existence of a real need.

"Customers are ready to place purchase orders"

"Only if we develop the product as per the specifications and at the price (free?) we've promised them—for which we need only Rs 20 crores and 9 months' time!" 

Well, unless customers are ready to speak to VCs, and truly vouch for the value being provided, your credibility will be stretched.

"The following people are on our board and are advisors"

Having brand names on your board certainly helps. But (and this is a big 'but'), having a steel tycoon on the board of an online ticketing start-up doesn't add much value compared to having the CEO of a travel company. It is important for the big names on the board to be able to vouch for the capabilities of the management team. It is usually not a validation of the management team if the board consists of well-known relatives and family members. In any case, whatever the calibre of the board, it is the management team that must pass muster. Also, make sure that the 'board members' know they are on the board, and are aware of the goings-on in the company.

"We have established partnerships with the following companies"

And then you go on to enumerate a list of no-name, capital-starved, struggling start-ups. Not a good sign. Remember, two struggling start-ups are more likely to pull each other down than otherwise. Notwithstanding tales of love where partners survive on nothing more than love and fresh air, it is better to have partnerships where at least one of the partners has market and financial muscle.

"We are a proven team"

"We have worked together in cushy jobs for a $5 billion global company for two years. We have no experience of working in a start-up, and no idea about how to manage things on small budgets and without expense accounts."

Instead, what you should say is that you have the right experience and skills and the passion to succeed; that you are willing to do whatever it takes to succeed; that you are willing to surround yourself with people who know; and that you are willing to step aside, should the company need it.

"Our estimates are conservative"

Since projections are rarely achieved and if the estimates started out by being conservative, then it doesn't say much about the team, right? Instead of saying projections are conservative, it is better to show the assumptions that have been used to arrive at the projections. And these assumptions should have been market-tested.