With investors, the Rule of Three can make or break your funding. Passion. Product. Team. But there is a fourth element to that equation. Entrepreneurs tend to think pitching should embody one or even all three of those elements. But they would be wrong as they don’t understand myths that kill investor interest.
There are at least three myths about pitching to investors. The three covered below are especially misleading. But first, what is a myth? Here is one of the simplest definitions: Any invented story, idea, or concept.
Let’s discuss each of the three myths around pitching investors and dispel them. These myths have killed tens of thousands of deals and cost entrepreneurs many millions of dollars. Believing these myths will cause you to waste months and years pitching to investors with little to show for it; they can destroy your reputation among investors; and even if you get a deal, they can result in sub-par valuation which means you lose control and you lose cash at exit. As a Vision Master, you must “get” why they do not work.
You may believe that the following pitching myths are true. Many people also believe that if you execute competently the tactics implied by these myths, you will make up for the fundamental weakness of your pitch. But that doesn’t work, any more than building a taller building on a weak foundation makes the building safer. These are myths because they are not valid; not a solid foundation. You need to know what these myths are clearly, so you catch yourself thinking about them. So here goes:
#1 – The first myth is that passion will carry the day when pitching investors. After all, it’s my passion that will drive the business to success. Right? People believe that a lot, especially in early-stage ventures.
Passion cuts two ways. Investors appreciate passion, but without deep trust between you and your investor, they are afraid of passion. They think that:
- Passion is emotional.
- It can cloud judgment.
- It can lead to poor decisions.
- It can lead to persistence in a failed strategy when a pivot is called for.
- Conversely, being emotional, it can lead to impulsive decisions.
#2 – The second myth is that breakthrough technology alone can deliver investor results. In other words, the technology or product is so compelling that any intelligent investor will get it. But, investors believe that:
- Products and technology become obsolete at a rapid pace today.
- The ability to execute on a plan and to pivot when needed is far more predictive of investment returns than core technology.
- Most IP (patent protection) can be sidestepped and is too expensive to defend.
- Competition is out there waiting to underprice you or outsmart you, no matter how strong your IP.
#3 – The third myth is that past team successes will predict the future. You may imagine “My track record and team history are so strong that no one will doubt our ability to make a successful company. ” Yes, investors do put weight on a recent past success in the same field. But, as a general rule, your success in the past does not apply to today in the minds of most investors. They think instead:
- Conditions change; you and your team is facing different issues than last time.
- You are a changed person; your life situation and motivations are not the same as last time.
- The entire world is different than before. Your past success is not highly predictive.
- What you learned from past mistakes may be more predictive than your successes.
Those who know me understand I am a proponent of getting investors to bet on the jockey. You and your team are more important to the company’s success than product or tech. But what is it about your team that smart investors look for, if not recent past success?
It is important to note that “betting on the jockey” is betting on you and your team as it is today. They are betting on the CURRENT environment and people. Today your team is different; your market is different. Hell, the whole world is different! You’ve got to address issues of character, cognitive diversity on your team, team chemistry, your capacity to pivot on a timely basis (not too often and not too late) and above all, can you be trusted. I’ve discussed trust in many other articles. Suffice it to say for now that there are several kinds of behavior that investors fear: hiding information, exaggeration, not doing what what you promise, naivete, delusions about the market, delusions about your own abilities, spending without planning, impulsiveness, and so on. In order to engender trust, you’ve got to find a way to remove fears of these kinds of common entrepreneurial behaviors.
So those are the three myths. If you find yourself thinking of any of these three myths as a pitching strategy, you are making a classic mistake.
So the fundamental flaw of the myths is that you think investors are listening and trusting when you first pitch them. You imagine that they’re listening with an open mind. They are NOT. They are listening for the flaw in you, your team, your product, and your pitch. You MUST earn their trust to move forward, BEFORE passion, product and team past can be persuasaive. Earning trust means removing fear, fear of all the kinds of behaviors I listed above.
You may already be paying the price and frustration of executing on these myths. Think of the wasted time and meetings that you can never have again.
Pitching myths are real because a lack of trust creates fear in the investor’s mind. In the presence of trust, passion is a virtue; investors believe your product and tech will succeed. Because of trust, you and your team will overcome competition and market changes.
Don’t laugh this off. You must address trust and fear in the investor’s mind at the start of your pitch or they are not listening to your pitch.
I am not suggesting to my Vision Master audience that you don’t talk about the product, passion, or people. It means that you talk about them after you establish trust. In addition, every word you utter about product, passion and people is expressed in a way that removes the fears associated with those issues. Some of the most potent fears are bulleted in the above blog. Address these fears while you’re pitch.
I’ve written much more on trust and overcoming investor fear in past blogs. Do a search in my blog for “trust” and see what else there is to know.
Even with the help of other articles on trust, articles only provide an overview, not personalized for your particular company, needs and habits. Feel free to reach out to me for individual guidance.