If I am watching their pitch, I will immediately reject the company if:
- They tell my how passionate they are about their industry. That means they have no experience or knowledge about it and think that passion makes up for it.
- They are still in college or a recent grad.
- The whole scheme seems like the founder and his buddies got drunk one night at a bar and decided that they hated their jobs, and one of them says, “Hey, we are at least as smart as Zuckerburg, we should start our OWN company!” And they come up with some crazy-ass idea just to claim that they're entrepreneurs.
- The company is based
If I am watching their pitch, I will immediately reject the company if:
- They tell my how passionate they are about their industry. That means they have no experience or knowledge about it and think that passion makes up for it.
- They are still in college or a recent grad.
- The whole scheme seems like the founder and his buddies got drunk one night at a bar and decided that they hated their jobs, and one of them says, “Hey, we are at least as smart as Zuckerburg, we should start our OWN company!” And they come up with some crazy-ass idea just to claim that they're entrepreneurs.
- The company is based in Russia.
- They can’t tell me what their product is, or their slide deck is so muddled I can’t figure out what it does.
- They tell me how this is such a great investment and I’d better get in now.
- It’s just an idea and they don't have a product yet.
- They do pretty much the same thing as another big company but will “offer a better user experience.”
- Their product already exists on the market and they didn’t know that.
- It’s an app that will rely upon users paying a fee to download it.
- It’s a product that will rely upon advertising to generate any revenue.
- It has something to do with fashion, online sales, entertainment (movies, tv, videos, etc), or alcohol.
- It can’t be scaled, or it relies upon the expertise of the founder.
- Founder spends all his time telling me how big and terrific the market is.
Edit: Based on the responses below, I would like to add that the failure rate of all startups is 90%. After reviewing literally thousands of companies and seeing thousands of pitches, you get an instinct for those that are just not ready. You also see really good pitches and great companies. The ones that investors stay away from are the ones that they have seen in the past will fail. That doesn’t mean it will fail (there is always the surprise), but it’s about risk. Investors don’t want high risk — they want very low risk.
Some people say that my list eliminates all companies. Not by a long shot! You just have to know where good companies are. They are not at the local incubator or WeWork.
As an example, we presented a social media company (back when social media was just getting going). This was the entrepreneur’s third company (his first two were sold and achieved a very good ROI for his investors), and he had a senior level executive from each of these companies: Youtube, Disney, Apple, Microsoft, Yahoo, Google and one more I can’t remember. The chances for this company were very high because he had solid management experience and a solid board of directors. His company sold to one of them six months later.
Another: A medical device, a new type of stent that you use to clear a heart after a heart attack. Because the heart muscle is actively dying, seconds count, and this stent was cheaper and could be inserted in half the time of other stents. On his board he had 15 invasive cardiologists from major hospitals throughout the US. Since they are the ones who recommend new devices, do you think they would tell their hospitals to buy this new device that is superior to all others? Of course! It's board WAS the market itself.
Another: A guy knows the CEO of Walmart who told him about an expense that they couldn’t lower no matter how much they tried (refrigeration). The CEO said if he found a cheaper device, he would buy it and put it in all Walmarts. In addition, one of the chief investors and board members owned half of the convenience stores in Japan. So as soon as the product is perfected, he had major customers already committed.
We call these deals “wired up,” where there is either a buyer ready to buy the company once it reaches certain goals, or major industry customers are already committed to buying the product. We get those all the time.
Since investor dollars are scarce and finite, do you think an investor will put their money into one of these types of deals? Or a deal where you have no idea who your customer is, no idea how you will reach the customer, and no idea if the customer will even buy it? Your competition, as a company seeking funds, is not the investors, but all these other great deals that we see.
So you have to put together a company that has all the elements — it has to have a finished product, some sales or revenue, plus major revenue coming in soon from an identifiable source. If you don’t have that, it’s a real crap shoot.
40 pitch red flags which will undermine your startup fundraise
Fundraising? Don’t want to do stupid things? Here’s a blog for you.
Monkey read, monkey don’t do.
- Will you sign my NDA = N00B – read for more
- Don’t know as much as an associate at a VC on your industry. I heard of a startup getting schooled on their industry last week by an associate. The team was embarrassed…
- Not knowing of a big competitor. Dude, Google… it signals you are not an insider
- We have no competition. Dude, yes you do. Inertia is a big competitor. There is always a way of doing something
- The competition sucks. Don’t talk crap
40 pitch red flags which will undermine your startup fundraise
Fundraising? Don’t want to do stupid things? Here’s a blog for you.
Monkey read, monkey don’t do.
- Will you sign my NDA = N00B – read for more
- Don’t know as much as an associate at a VC on your industry. I heard of a startup getting schooled on their industry last week by an associate. The team was embarrassed…
- Not knowing of a big competitor. Dude, Google… it signals you are not an insider
- We have no competition. Dude, yes you do. Inertia is a big competitor. There is always a way of doing something
- The competition sucks. Don’t talk crap about your competition. They don’t suck
- First time founders in general. Startup is hard. If there is no traction, I’m dubious if they can execute
- Bankers doing startup. Startup is cool atm… just saying. Sure there are exceptions, especially in fintech
- Fund my idea. FFS. Read
- Stupid forecasts. Claiming you will 100x each year is a great way to lose credibility. Better to say nothing than say something stupid
- No financial model. VCs want to know how you forecast your business. Worse than stupid forecasts is having no forecast
- Conservative. Never say this word especially when it relates to financial forecasts. No one believes you
- Massive forecasts. No, you will not get to $100m revenue in less than 5 years. Google got to $85m in its fifth year
- Don’t understand basic, key terms. Bookings, billings, revenue… You can understand top line SaaS terms here
- Our team is a competitive advantage: FFS. No. This is like on every slide around ‘competitive advantage’. There ARE some ballers. You aren’t one of them
- We will go viral. FFS… Almost no one has ever gone viral, at least for a prolonged period. I’ve authored the most advanced nerdy work on viralityif you really want to understand it. Real virality is f****** nuts
- Who is the CEO? I LOVE asking this. Sometimes founders look at each other in the room and I lose my shit laughing. They haven’t had the conversation
- Service based with no plan for a marketplace. VCs only do scaleable. Services don’t scale. You can start with it, but you can’t do it once you need to do things that scale. Read. Key reading
- I want to copy Facebook. No shit. Someone said that to me. I was like, what niche are you focused on? He was like, no, I want to copy Facebook? Worse pitch ever
- Tiny market size. Dude… VCs care about the market. Read. You can’t be big with a small market. Whatever, here are 3 slides from a prezzo I did at a demo day. It was in Rome… hence pizza joke
Anyway…
- Sole founders. There are exceptions, but sole founders really suck. There is just too much to do with no resources till you have the $ to hire a management layer. 3 founders is 3x smart work. Blog on that
- Not full time. If you haven’t quit your job yet, or you intend having a side job whilst being funded they you aren’t all in on the startup
- Stupid on term stuff: Crazy terms and valuations… that is TC disease. You are not the exception.
- Tech company with no tech team: I get a lot of founders asking me qus on my live chat on my blog. One disturbs me and it is about hiring agencies to build their app. I just say if you are a tech company you have to be a tech company. You aren’t if it is outsourced. There is no core competency
- What do you invest in? Seriously? You meet an investor and ask about them? You should have done that before!
- Taking a long time to respond to emails: My mate set up a company with Cuban… partially because he loved how quickly he responded to emails. You’re looking for $ dude. Be on the ball
- Being aggressive aka not coachable. You are selling. Don’t be a dick. A number of times my friends have said they passed on a startup they really liked as the founder was not coachable. You want smart money. Hmmm. But you don’t listen. #irony
- We don’t want to sell. Are you kidding me… do I have to explain? See indie.vc
- We are building a lifestyle business. You don’t get it, dude
- The team sucks. Look at the non-founder layer. It ain’t getting better. They hired crap now, they will only hire crap in future
- Stealth mode. There are reasons (if you are a baller, I know one great example of why they were), but honestly WTF
- Let me get Jimmy to demo. Really? You are the CEO and you can’t do a demo in a pitch? You are meant to lead sales and you can’t do a demo? Wow
- Cold emails. Obviously. You need warm intros
- High salaries. If you are early stage, no one should be making six figures. Sure, they may be an exception for some super engineer, but the CXOs should be on ramen salaries. Some founders get tetch about this, but they’re idiots
- Buzzwords. Yawn. Don’t drop high-tech terms if it is obvious you really don’t do AI. You have some boring business and you are adding some AR feature? Come on. Never go on about disrupting. It is a cliche. And don’t get me started on describing a marketer as a ninja or yourself as a visionary. Peter Thiel says that buzzwords are one of his biggest turnoffs
- Jargon. Unless the people you are pitching are as nerdy as you on your specific industry, don’t go full on tech nerd. Either people don’t understand and they ‘don’t get it’ or they feel stupid. Neither are good
- Small gross margins. Margins matter. Especially if you are a SaaS company, margins less than 50% are not good
- Prior investors not doing pro-rata. If you have raised more then you need your prior investors to do their pro-rata. New investors assume the old investors to know more than them. They also know that investors double down on winners. If they aren’t putting in more cash, well they assume you are a dog in their portfolio stable
- No skin in the game. You need to have an answer to ‘how much have you invested in this company?’ Investors are all about you having a lot to lose so you want to win
- Crummy investors on the cap table. Investors want to invest with great investors. If you raise from dogs, they assume you have fleas. I encountered an interesting case recently. One investor hit the headlines for the whole sexual stuff. He invested in a company I know and one investor refused to invest out of principle. Just saying
- Fundraising brokers. These are people that help you raise money. 99% of the time VCs flat out hate this. I have a blog on this topic of fundraisers here
Updated from blog at: 40 pitch red flags which will undermine your startup fundraise -
Hiring a business consultant can feel like a big step, but it’s actually pretty simple if you know what you’re looking for. Here’s a quick guide to help:
- Know your goals
Start by being clear about what you need help with. Is it streamlining operations, increasing sales, or creating a marketing strategy? Knowing your goals will help you find someone with the right expertise. - Look for experience and reviews
Experience matters. You want someone who has actually solved the problems you’re dealing with. Check their reviews or past client feedback to see if they’ve done solid work before. - Use a platfor
Hiring a business consultant can feel like a big step, but it’s actually pretty simple if you know what you’re looking for. Here’s a quick guide to help:
- Know your goals
Start by being clear about what you need help with. Is it streamlining operations, increasing sales, or creating a marketing strategy? Knowing your goals will help you find someone with the right expertise. - Look for experience and reviews
Experience matters. You want someone who has actually solved the problems you’re dealing with. Check their reviews or past client feedback to see if they’ve done solid work before. - Use a platform like Fiverr
This is where Fiverr comes in handy. I’ve personally used it to find consultants for a couple of projects, and it’s super straightforward. Just search “business consultant” on Fiverr, and you’ll find a ton of options, from general consultants to niche experts. You can also filter by budget and read reviews to make sure they’re legit. - Have a chat first
Before hiring, message the consultant to discuss your project. Most pros on Fiverr are happy to answer questions and see if they’re a good fit. - Start with a small project
|If you’re unsure, test them out with a smaller task first. That way, you can see if their style and advice work for you before committing to something bigger.
Best of luck!
Companies that matter make and market different.
They are not designing products or services that just incrementally improve on what came before.
They don’t market or make something better.
Legends introduce the world to a new category of product or service. New ways of thinking and solving problems.
They make and market something exponential. A major leap forward. Think AirBNB, WhatsApp, Salesforce or Google.
And the greatest startups don’t compete in any traditional sense. They want the world to see their innovation as new, fresh, different. They do not want to be compared to what came before. Th
Companies that matter make and market different.
They are not designing products or services that just incrementally improve on what came before.
They don’t market or make something better.
Legends introduce the world to a new category of product or service. New ways of thinking and solving problems.
They make and market something exponential. A major leap forward. Think AirBNB, WhatsApp, Salesforce or Google.
And the greatest startups don’t compete in any traditional sense. They want the world to see their innovation as new, fresh, different. They do not want to be compared to what came before. They want others to be compared to them.
#1 VC in the world, according to Forbes, Jim Goetz of Sequoia Capital says, “We seek mission-driven founders who can build a great company and category at the same time.”
Traditionally, startups fall into the trap of positioning themselves to fight for market share within existing categories. They play the comparison game. “We’re better than the bad guys,” they say. Think Coke vs. Pepsi or Eight Minute Abs vs. Seven Minute Abs.
Great startup founders are different. They don’t just create a great product and company. They are category designers. They have a plan for how to shift customers dollars from the old to the new - think from Blockbuster to Netflix.
VCs are looking for startups that can make exponential shifts happen at scale and change the way people think about problems and solutions. Which in turn changes customer buying and consumption. Which in turn designs (or re-design) an entire space.
So VCs want to invest in companies that show the ability to design a new market category. AND earn two thirds of the economics. (As I outline here in an HBR article, if you care to dig into the data).
Legendary VC Mike Maples of Floodgate says, “The more startup pitches I see, the more convinced I become that company design and category design need to happen sooner than later.”
So if you want to set off VC red flags, tell them you’re not designing a new category.
Hope that helps,
Christopher
Look at the answer by way of what's called Due Diligence.
If a VC takes an interest in you, you might get the meeting / the coffee / the pitch / the term sheet, and ultimately they're going to dig in.
Begging a question from your perspective – in building your venture, can you plan according to typical red flags for investors and overcome their objections before they have them?
Simply put, is there a list of things that always give investors pause? Things to ensure you overcome.
Due Diligence?
A measure of prudence, responsibility, and diligence is expected from, and ordinarily exercised by, a reas
Look at the answer by way of what's called Due Diligence.
If a VC takes an interest in you, you might get the meeting / the coffee / the pitch / the term sheet, and ultimately they're going to dig in.
Begging a question from your perspective – in building your venture, can you plan according to typical red flags for investors and overcome their objections before they have them?
Simply put, is there a list of things that always give investors pause? Things to ensure you overcome.
Due Diligence?
A measure of prudence, responsibility, and diligence is expected from, and ordinarily exercised by, a reasonable and prudent person under given circumstances. Thus in operating an entity, founding a startup, a potential investor will gather necessary information on actual or potential risks involved in the investment opportunity. It is the duty of each party to confirm each other’s expectations and understandings, and to independently verify the abilities of the other to fulfill the conditions and requirements of the agreement.
Are you prepared to overcome an investor’s expectations?
Considering that their expectations start and end with a return on their investment, what are some of the most common red flags that give potential investors pause?
Let’s a take a stab…
- Are the founders investing their own moneyin the venture? If not, why would anyone else?
- Are there an exceptional number of investors and/or industry inexperienced investors who have a sizable share? That can signal that raising earlier funding was particularly difficult for some reason or that there are investors involved who might burden the focus of the venture.
- Mistaking customer validation for market validation. Potential and existing customers DO NOT validate that you can achieve and maintain a share of the market. Do you have market validation?
- Gaps in the team – at least, essentially, three areas of focus: resources, building, and the market. As I’ve put before, the Butcher, the Baker, and the Candlestick Maker.
- “There is no competition” or “this is a unique idea” – sure it is.
- Lacking basic marketing/KPI oriented elements: capable site, Analytics, appropriate social media, some Adwords (or otherwise) capably tested, etc.
- Clearly inexperienced Go to Market plan. References to areas of focus being broad or generic and not distinctly applicable. Such as stressing: SEO, Content Marketing, PR/Press Release, Sales – that’s not a plan; that’s standard operating procedure for any organization
- Narrow focus in a broad market – only having partners/traction in one city, only being iOS for a mobile, only knowing one target when others are clearly applicable, etc.
- Excessive debt and/or stated intention to get the founders paid
- Early investors having no further interest. Even if only so as to make the right connections and provide experience/advise to further success, one can expect that anyone invested in the business continues to be so, unless something is wrong.
- Sole proprietorship or family focused founding / executive team. Investors seek exits – sole proprietors and families tend to keep a business in perpetuity.
- Suggesting unrealistic growth or projections. Likewise, unrealistic valuations. YOU WILL NOT GROW UP AND TO THE RIGHT.
- Neither a Board of Advisors nor Directors, equity allocated, involved. Your team is not limited to your employees.
- Incomplete financials
- Controlling or opaque founders. Can we look into everything? Do we know all the other investors? Is the team open to change? Loosely related things such as major foreign investors – whom aren’t necessarily unknown/silent but have different circumstances/considerations that may factor in
- IP or ownership issues. Likewise but contrary, expecting VCs sign NDAs
- Highly regulated markets or industries potentially so. Might the industry cause a problem and if so, are you aware of that possibility and have you addressed the challenge?
An exhaustive list? By no means! But consider as you endeavor that a potential investor will conduct due diligence and the process starts even before you have a conversation with them.
Working to overcome the causes for concern might be a better approach to getting funded than perfecting your pitch.
Via Paul O'Brien's answer to What are the most common reasons why VCs reject a startup?
Footnotes
As a venture capitalist, there are several red flags that could lead to an immediate rejection of a startup. Here are some of the most critical ones:
- Lack of Market Need: If the startup does not clearly demonstrate a significant market need or problem that their product or service addresses, it raises concerns about its viability.
- Weak Business Model: A vague or poorly defined business model, especially one that does not show a clear path to profitability, can be a major red flag.
- Inexperienced or Incompetent Team: A founding team lacking relevant experience, skills, or a track record of success
As a venture capitalist, there are several red flags that could lead to an immediate rejection of a startup. Here are some of the most critical ones:
- Lack of Market Need: If the startup does not clearly demonstrate a significant market need or problem that their product or service addresses, it raises concerns about its viability.
- Weak Business Model: A vague or poorly defined business model, especially one that does not show a clear path to profitability, can be a major red flag.
- Inexperienced or Incompetent Team: A founding team lacking relevant experience, skills, or a track record of success in their industry can indicate potential issues with execution.
- High Burn Rate with Little Progress: If a startup has a high burn rate without clear milestones or progress towards product development or market entry, it raises concerns about financial management.
- Unclear Value Proposition: If the startup struggles to articulate its unique selling proposition or how it stands out from competitors, it may indicate a lack of strategic clarity.
- Poor Financials or Projections: Inaccurate or overly optimistic financial projections, or a lack of transparency in financial statements, can indicate a lack of understanding of the business.
- Legal Issues or Compliance Risks: Any existing legal disputes, regulatory issues, or compliance risks can pose significant barriers to success.
- Negative Market Trends: If the industry is declining or facing significant headwinds, it may be a red flag for long-term viability.
- Lack of Traction: A startup that has been operating for a significant time without gaining traction (users, revenue, partnerships) may not have a sustainable product-market fit.
- Resistance to Feedback: Founders who are defensive or dismissive of constructive criticism may struggle to adapt and improve their business model or product.
- Overvaluation: If the startup is seeking funding at an unrealistic valuation without a strong basis for it, it can indicate a disconnect with market realities.
Identifying these red flags early can help venture capitalists make informed decisions and avoid potential pitfalls in their investment strategies.
Where do I start?
I’m a huge financial nerd, and have spent an embarrassing amount of time talking to people about their money habits.
Here are the biggest mistakes people are making and how to fix them:
Not having a separate high interest savings account
Having a separate account allows you to see the results of all your hard work and keep your money separate so you're less tempted to spend it.
Plus with rates above 5.00%, the interest you can earn compared to most banks really adds up.
Here is a list of the top savings accounts available today. Deposit $5 before moving on because this is one of th
Where do I start?
I’m a huge financial nerd, and have spent an embarrassing amount of time talking to people about their money habits.
Here are the biggest mistakes people are making and how to fix them:
Not having a separate high interest savings account
Having a separate account allows you to see the results of all your hard work and keep your money separate so you're less tempted to spend it.
Plus with rates above 5.00%, the interest you can earn compared to most banks really adds up.
Here is a list of the top savings accounts available today. Deposit $5 before moving on because this is one of the biggest mistakes and easiest ones to fix.
Overpaying on car insurance
You’ve heard it a million times before, but the average American family still overspends by $417/year on car insurance.
If you’ve been with the same insurer for years, chances are you are one of them.
Pull up Coverage.com, a free site that will compare prices for you, answer the questions on the page, and it will show you how much you could be saving.
That’s it. You’ll likely be saving a bunch of money. Here’s a link to give it a try.
Consistently being in debt
If you’ve got $10K+ in debt (credit cards…medical bills…anything really) you could use a debt relief program and potentially reduce by over 20%.
Here’s how to see if you qualify:
Head over to this Debt Relief comparison website here, then simply answer the questions to see if you qualify.
It’s as simple as that. You’ll likely end up paying less than you owed before and you could be debt free in as little as 2 years.
Missing out on free money to invest
It’s no secret that millionaires love investing, but for the rest of us, it can seem out of reach.
Times have changed. There are a number of investing platforms that will give you a bonus to open an account and get started. All you have to do is open the account and invest at least $25, and you could get up to $1000 in bonus.
Pretty sweet deal right? Here is a link to some of the best options.
Having bad credit
A low credit score can come back to bite you in so many ways in the future.
From that next rental application to getting approved for any type of loan or credit card, if you have a bad history with credit, the good news is you can fix it.
Head over to BankRate.com and answer a few questions to see if you qualify. It only takes a few minutes and could save you from a major upset down the line.
How to get started
Hope this helps! Here are the links to get started:
Have a separate savings account
Stop overpaying for car insurance
Finally get out of debt
Start investing with a free bonus
Fix your credit
There are a lot of good answers from others. But I’d like to add a few more and correct a few I think are not red flags. I consult with companies looking to raise capital from angels and VC’s. So I sit on the other side of the table, but if I don’t understand what they want, I can’t position my clients to do their best.
- In a subscription model, the churn is too high. I worked with several companies churning 8% per week. This is a clear red flag for VC’s.
- The company management can’t or won’t speak in terms of business model metrics and KPI’s. This is part of the VC qualification process. If a co
There are a lot of good answers from others. But I’d like to add a few more and correct a few I think are not red flags. I consult with companies looking to raise capital from angels and VC’s. So I sit on the other side of the table, but if I don’t understand what they want, I can’t position my clients to do their best.
- In a subscription model, the churn is too high. I worked with several companies churning 8% per week. This is a clear red flag for VC’s.
- The company management can’t or won’t speak in terms of business model metrics and KPI’s. This is part of the VC qualification process. If a company is unable to talk KP’s, it tells the VC that the management team is very green.
- The company can’t offer a decent business plan. It begs the question, ‘why?’. Have they not thought things through? Do they not have a growth plan? Are they so unsophisticated that they can’t put their strategy and growth program on paper?
- Their plan and the pitch deck is 90% product and less than 10% marketing. This is a big red flag. When marketing is an after-thought, VC’s know to walk away.
- Your valuation is unrealistic. Valuation is always subject to negotiation and it isn’t always clear after all the warrants and other terms and conditions precisely what the valuation is even after the deal is done. But if the VC is thinking $4.5 million and you are thinking $22 million, it’s going to be a very short conversation.
- Management has all the answers. A management team that is absolute in their beliefs is not a good partner for a VC. VC’s see their role as more than funder. They are coaches, advisers, match makers, and sometimes disciplinarians. People who won’t take advice are not well suited for anyone to fund.
As for some I do not believe are red flags -
- Your team is incomplete. That’s not a problem. VC’s have people or can help you find the people you need.
- You don’t have a board of directors. The VC’s are going to put one in place. It will be handled for you.
- Your ownership structure is not fully settled. The VC’s don’t expect you to have thought of every contingency. They are far more experienced at this than almost every company they fund. They will work their way through this with you.
When I’m listening to a team looking for investment, there are a couple of hard No’s that they’ll get quickly if:
- They can’t easily articulate a tightly focused customer segment that will have interest in their concept. Saying that everyone will use this product is just as bad as saying no one will use this product. Knowing your initial market segment well in advance is a prerequisite for getting at least the smallest handle on whether the dogs will eat the dog food.
- Overestimating market size. I’ve heard pitches that say the market is the entire fitness industry, or all mom’s, or $600B. And whi
When I’m listening to a team looking for investment, there are a couple of hard No’s that they’ll get quickly if:
- They can’t easily articulate a tightly focused customer segment that will have interest in their concept. Saying that everyone will use this product is just as bad as saying no one will use this product. Knowing your initial market segment well in advance is a prerequisite for getting at least the smallest handle on whether the dogs will eat the dog food.
- Overestimating market size. I’ve heard pitches that say the market is the entire fitness industry, or all mom’s, or $600B. And while I am sure those ARE markets, they aren’t THE market for any company looking for VC funding. Having a large market ($1B+) is vital for any investment. But you have to really know and be able to articulate your market opportunity. If you can’t and just say “everyone will love this product” it seems like you haven’t done your research.
- Too confident. If someone says they “have the best developers in the world” or “their marketing team is only from A shops and can knock it out of the park” or “they’ve never made a mistake” then usually that arrogance will get them in trouble down the road. And that means a hard No. Having the confidence to accomplish goals is different than hubris. And hubris will end up with management making bad decisions.
- Valuation is ridiculous. I’ve seen pre-revenue pre-customer companies setting valuations at $600M+. A.) If this is a unicorn and I just don’t know it yet, the RaR on such a deal is so small and the only way to generate a return is pure luck (ie. this is Uber) that the over-valuation is a massive red flag, or B.) This is a bad deal with a team that hasn’t done their research on valuations. And if you haven’t done your research on valuations, that in itself speaks volumes on the lack of prep on the team
There are many, many other red flags that’ll immediately get a no. Remember investors are not in the business of taking giant risks. They are in the business of finding outsized opportunities to generate Risk-Adjusted Return where the risk is the lowest they can find for the highest return. That means finding companies at their inflection points just prior to rapid growth but where as much of the risk that can be mitigated, is mitigated.
The other lists on the answers provide additional great insight.
There are several types of small business insurance that cater to different aspects of a business's operations. Here are a few of the most common types of insurance:
- General Liability Insurance: Essential for businesses with customer interactions, it can cover claims of bodily injury, property damage, reputational harm, and advertising injury. For example, if a customer slips and falls in your store, this insurance can cover their medical bills.
- Professional Liability Insurance: This coverage is important for business that provide professional services or advice. It helps protect against claims
There are several types of small business insurance that cater to different aspects of a business's operations. Here are a few of the most common types of insurance:
- General Liability Insurance: Essential for businesses with customer interactions, it can cover claims of bodily injury, property damage, reputational harm, and advertising injury. For example, if a customer slips and falls in your store, this insurance can cover their medical bills.
- Professional Liability Insurance: This coverage is important for business that provide professional services or advice. It helps protect against claims of negligence, mistakes or failure to deliver services as promised.
- Workers' Compensation Insurance: Mandatory in most states, it provides benefits for work-related injuries or illnesses, including medical care, lost wages, and disability benefits. For instance, if an employee gets tendonitis from lifting heavy boxes, this coverage can help with their treatment.
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The most common/best ones I experienced:
1. Long respond times by founder (>48–72hrs)
2. Founder lacks on-hands knowledge of business numbers (‘KPIs’)
3. Founder is not familiar with industry jargon and acronyms
4. Founder suggests meeting at fancy places (especially when they leave before the bill is settled)
5. Financials are not shared after the first meeting
6. Citing partners or partnerships w
The most common/best ones I experienced:
1. Long respond times by founder (>48–72hrs)
2. Founder lacks on-hands knowledge of business numbers (‘KPIs’)
3. Founder is not familiar with industry jargon and acronyms
4. Founder suggests meeting at fancy places (especially when they leave before the bill is settled)
5. Financials are not shared after the first meeting
6. Citing partners or partnerships which are not real
7. Manufacturing a product in ...
Too many buzzwords and not enough results. This is the biggest red flag for me.
Peter Thiel is by far my favorite venture capitalist investor. His book Zero to One covers the fundamental ideas about innovative ideas. Below are seven questions he asks startup entrepreneurs.
- The Engineering Question: Can you create breakthrough technology instead of incremental improvements?
- The Timing Question: Is now the right time to start your particular business?
- The Monopoly Question: Are you starting with a big share of a small market?
- The People Question: Do you have the right team?
- The Distribution Question:
Too many buzzwords and not enough results. This is the biggest red flag for me.
Peter Thiel is by far my favorite venture capitalist investor. His book Zero to One covers the fundamental ideas about innovative ideas. Below are seven questions he asks startup entrepreneurs.
- The Engineering Question: Can you create breakthrough technology instead of incremental improvements?
- The Timing Question: Is now the right time to start your particular business?
- The Monopoly Question: Are you starting with a big share of a small market?
- The People Question: Do you have the right team?
- The Distribution Question: Do you have a way to not just create but deliver your product?
- The Durability Question: Will your market position be defensible 10 and 20 years into the future?
- The Secret Question: Have you identified a unique opportunity that others don’t see?
This video interview is also great insight if your startup is crazy smart or simply crazy.
I once met a man who drove a modest Toyota Corolla, wore beat-up sneakers, and looked like he’d lived the same way for decades. But what really caught my attention was when he casually mentioned he was retired at 45 with more money than he could ever spend. I couldn’t help but ask, “How did you do it?”
He smiled and said, “The secret to saving money is knowing where to look for the waste—and car insurance is one of the easiest places to start.”
He then walked me through a few strategies that I’d never thought of before. Here’s what I learned:
1. Make insurance companies fight for your business
Mos
I once met a man who drove a modest Toyota Corolla, wore beat-up sneakers, and looked like he’d lived the same way for decades. But what really caught my attention was when he casually mentioned he was retired at 45 with more money than he could ever spend. I couldn’t help but ask, “How did you do it?”
He smiled and said, “The secret to saving money is knowing where to look for the waste—and car insurance is one of the easiest places to start.”
He then walked me through a few strategies that I’d never thought of before. Here’s what I learned:
1. Make insurance companies fight for your business
Most people just stick with the same insurer year after year, but that’s what the companies are counting on. This guy used tools like Coverage.com to compare rates every time his policy came up for renewal. It only took him a few minutes, and he said he’d saved hundreds each year by letting insurers compete for his business.
Click here to try Coverage.com and see how much you could save today.
2. Take advantage of safe driver programs
He mentioned that some companies reward good drivers with significant discounts. By signing up for a program that tracked his driving habits for just a month, he qualified for a lower rate. “It’s like a test where you already know the answers,” he joked.
You can find a list of insurance companies offering safe driver discounts here and start saving on your next policy.
3. Bundle your policies
He bundled his auto insurance with his home insurance and saved big. “Most companies will give you a discount if you combine your policies with them. It’s easy money,” he explained. If you haven’t bundled yet, ask your insurer what discounts they offer—or look for new ones that do.
4. Drop coverage you don’t need
He also emphasized reassessing coverage every year. If your car isn’t worth much anymore, it might be time to drop collision or comprehensive coverage. “You shouldn’t be paying more to insure the car than it’s worth,” he said.
5. Look for hidden fees or overpriced add-ons
One of his final tips was to avoid extras like roadside assistance, which can often be purchased elsewhere for less. “It’s those little fees you don’t think about that add up,” he warned.
The Secret? Stop Overpaying
The real “secret” isn’t about cutting corners—it’s about being proactive. Car insurance companies are counting on you to stay complacent, but with tools like Coverage.com and a little effort, you can make sure you’re only paying for what you need—and saving hundreds in the process.
If you’re ready to start saving, take a moment to:
- Compare rates now on Coverage.com
- Check if you qualify for safe driver discounts
- Reevaluate your coverage today
Saving money on auto insurance doesn’t have to be complicated—you just have to know where to look. If you'd like to support my work, feel free to use the links in this post—they help me continue creating valuable content.
I think some of the reasons that come to mind are :
1. High Salaries
Developing adequate product-market fit usually takes at least a year of researching, prototyping, and financing. Beyond that, your startup will need considerable funds for sales, marketing, and hiring initiatives. With so much money on the line, most investors prefer partnering with founders who allocate most of their startup's rev
I think some of the reasons that come to mind are :
1. High Salaries
Developing adequate product-market fit usually takes at least a year of researching, prototyping, and financing. Beyond that, your startup will need considerable funds for sales, marketing, and hiring initiatives. With so much money on the line, most investors prefer partnering with founders who allocate most of their startup's revenue back into business development. Wait until your startup is profitable before paying yourself a comfortable salary.
2. Buzzwords
When describing your startup's value to potential investors, brevity, clarity, and precision are key. As you build your pitch deck, be sure to include as few slides as possible and always speak clearly about your company's growth and projections. Avoid unnecessary fluff such as industry jargon or buzzwords. When a startup founder uses complex industry buzzwords, they run the risk of damaging their credibility as a serious entrepreneur [ https://www.entrepreneur.com/article/235648 ].
3. No Momentum
Another major red flag for startup investors? Not citing evidence for momentum achieved. Even if you haven't raised any funds to date, you should still be able to demonstrate some forward progress [ https://www.forbes.com/sites/allbusiness/2017/03/04/how-to-create-a-great-investor-pitch-deck-for-startups-seeking-financing/#6381ac382003 ]. While revenue is important, there are other ways of establishing momentum including:
* A minimum viable product (MVP)
* Beta with some user numbers ( for very early stage)
* Repeat users/consumers
* Positive reviews
* Press or buzz about the startup
* Partnerships with reputable brands or influencers
The savviest tech founders understand how to leverage these and other metrics to demonstrate momentum.
4. Zero Competition
Many startup founders assume that having zero competition in a marketplace will impress investors. This is a huge mistake. Experienced investors know any idea worth pursuing has at least some competition.
Investors expect startup founders to know the latest industry comparisons on sales, revenues, and expenses.Be sure to collect external data on how your startup stacks up against the competition.
5. Over-promising
The "under-promise and over-deliver" is particularly appropriate for tech startups seeking venture capital funding. The world's top venture capitalists sit through dozens of pitches per week. From experience, they'll know which goals are obtainable and which goals are out of reach. Instead of overpromising, entrepreneurs should establish realistic goals and objectives. The best founders create a clear roadmap for success and routinely monitor startup performance. With the right goals in place and an actionable plan to get there, startup founders can build major credib...
I’ve only invested in a few companies, but I have a lot of VC friends and I still look at a lot of deals. The number one thing is a CEO with attitude. I don’t mind if they have a strong point to make, but if you already have a big chip on your shoulders about something, good luck with that.
If they have zero experience in the field in which they want to participate I say, “no” to that too. I think Dunning-Kruger effect immediately and move on.
VCs all have different criteria and I’ve seen some deals get funded because the founders all came from Ivy-League schools while others who were deserving
I’ve only invested in a few companies, but I have a lot of VC friends and I still look at a lot of deals. The number one thing is a CEO with attitude. I don’t mind if they have a strong point to make, but if you already have a big chip on your shoulders about something, good luck with that.
If they have zero experience in the field in which they want to participate I say, “no” to that too. I think Dunning-Kruger effect immediately and move on.
VCs all have different criteria and I’ve seen some deals get funded because the founders all came from Ivy-League schools while others who were deserving didn’t have a college education. VCs are very clubby so be aware of that going in.
Another area of considerable weakness is a lack of customer acquisition planning. They have these lofty projections but no mention of where or how these customers will find the company and how engagement will occur. They often have no spending on advertising with an over-reliance on social media.
I tend to focus on the CEO the most. I look for matters of character, evidence of persistence, employability outside their venture, and their ability to manage and lead a team.
There are so many!
* No validated business model (no product-market fit)
* Part-time founders (anyone with 5% or more pre-money equity not being full-time)
* Evidence of pre-mature scaling
* Pre-revenue burn rate that is too high (>$35k/mo is automatic NO, but even $12k/mo could be too high, depending on circumstance)
* Bankruptcy in history of a founder
* Arrogance (we like confident) of fou
There are so many!
* No validated business model (no product-market fit)
* Part-time founders (anyone with 5% or more pre-money equity not being full-time)
* Evidence of pre-mature scaling
* Pre-revenue burn rate that is too high (>$35k/mo is automatic NO, but even $12k/mo could be too high, depending on circumstance)
* Bankruptcy in history of a founder
* Arrogance (we like confident) of founder(s)
* Lack of teachability in founder(s)
* Small TAM (total addressable market)
* Poor investment terms in...
If the deal had no purpose, no vision, no plan and certainly no way to execute, I would think I would reject them…
There are many but I try to not reject the early stage startup immediately as it could be ignorance or poor presentation as I deal with very early stage companies where many of the people have never run a company before.
I would tend to reject a startup if:
- It is simply an idea and they have no idea how to transform it into a business
- The people do not understand the industry or clients they are marketing to
- They have not tested their idea but have become overcome with the wonders and innovation of their idea and therefore become true believers who view any questioning as criticism and then become
There are many but I try to not reject the early stage startup immediately as it could be ignorance or poor presentation as I deal with very early stage companies where many of the people have never run a company before.
I would tend to reject a startup if:
- It is simply an idea and they have no idea how to transform it into a business
- The people do not understand the industry or clients they are marketing to
- They have not tested their idea but have become overcome with the wonders and innovation of their idea and therefore become true believers who view any questioning as criticism and then become defensive
- They focus on the big numbers but have no idea how to start small (all companies start small!)
- They have no sense of the costs associated with running a business and simply focus on raising money. This is very common and I usually have to go through that with them.
- Their product/service is smart but does not really provide a clear easy to explain the value to the client in a way that is not currently provided in the market place
- They reject planning with the fact that plans are never right. They are right but without a plan, you do not know where you are going. As they say in war strategy never survives the first clash with the enemy but without a strategy, you are definitely defeated!
Many, many more reasons to not pursue an investment. There are always 100s of reasons for failure
We are slightly different and we are looking for the one reason for success in that we work with our companies to help them complement their team so if they are driven, smart and have a good solution to a real need then we try to wrok with them.
“An investor will spend, on average, 3 minutes and 44 seconds reviewing [ https://techcrunch.com/2015/06/08/lessons-from-a-study-of-perfect-pitch-decks-vcs-spend-an-average-of-3-minutes-44-seconds-on-them/https://techcrunch.com/2015/06/08/lessons-from-a-study-of-perfect-pitch-decks-vcs-spend-an-average-of-3-minutes-44-s ] a pitch deck. So what does that mean for an entrepreneur? Make sure that the
“An investor will spend, on average, 3 minutes and 44 seconds reviewing [ https://techcrunch.com/2015/06/08/lessons-from-a-study-of-perfect-pitch-decks-vcs-spend-an-average-of-3-minutes-44-seconds-on-them/https://techcrunch.com/2015/06/08/lessons-from-a-study-of-perfect-pitch-decks-vcs-spend-an-average-of-3-minutes-44-s ] a pitch deck. So what does that mean for an entrepreneur? Make sure that the content of your presentation is short, sweet, and to the point.”
Here are some of the Common Red Flags, that most VCs encounter and reject immediately:
* Inability to create their first impression in the first few minutes
* Uninteresting Value Proposition: Do they have a product that solves a problem in at least 10X better way than the competition? Are they able to make the investors believe in their idea?
Eg: If their product is just another IT router, then it’s probably not going to create an impact in the market. If the product is in an already saturated sector with no outstanding features, it’s a huge red flag.
* Not showing up before time
* Lack of Awareness: Are they unaware of important factors like the changing market conditions, potential leads, and their company limitations?
* If the Founders are not passionate ( Lack the Entrepreneurial Mindset, and Story Telling Skills )
* Incompetent/ Inexperienced Team Members with no relevant credentials.
* Conflict or Lack of Coordination amongst the Team Members.
* Lack of Vision: If they don’t talk about their growth plan. ( Whom will they hire, Financial Plan, Key Milestones, Exit Strategy, etc. )
* Too Much Jargon: Is their pitch well designed and well structured? If the Founder is unable to explain what they do in a simple language, the presentation does not serve its purpose.
* Beating Around the Bush: If the founders don’t mention about the key business metrics or the competition, they are probably overconfident. They shou...
Thanks for the A2A.
We’re a funny VC. We believe the pitch process is broken, and that judging companies from a pitch causes investors to make mistaken pre-judgements of deals. For good evidence, see the Bessemer Ventures anti-portfolio.
So we work with partner groups who pre-filter startups for us. Then we give those pre-filtered startups a small amount of money, and give them a chance to prove themselves.
This way our startups can prove through results that they can make their business work (or not) even if they have red flags - like not being able to explain what they do, being superficially i
Thanks for the A2A.
We’re a funny VC. We believe the pitch process is broken, and that judging companies from a pitch causes investors to make mistaken pre-judgements of deals. For good evidence, see the Bessemer Ventures anti-portfolio.
So we work with partner groups who pre-filter startups for us. Then we give those pre-filtered startups a small amount of money, and give them a chance to prove themselves.
This way our startups can prove through results that they can make their business work (or not) even if they have red flags - like not being able to explain what they do, being superficially inferior to competitors, having a sole founder, or being headquartered in Bulgaria.
The first test for a startup is the founder(s) interview. Initially you want to assess your compatibility with them and vice versa as if there is not a ‘fit’ it doesn’t matter how good their idea is, it will not be a good experience for either you.
The next thing you are looking for is their ability to adapt and persist with their idea. There will be significant changes in the development of their idea and they need to be flexible and free thinking enough to pivot as often as required in order to ultimately be successful.
Next you need to determine that the idea is big enough to make the journey
The first test for a startup is the founder(s) interview. Initially you want to assess your compatibility with them and vice versa as if there is not a ‘fit’ it doesn’t matter how good their idea is, it will not be a good experience for either you.
The next thing you are looking for is their ability to adapt and persist with their idea. There will be significant changes in the development of their idea and they need to be flexible and free thinking enough to pivot as often as required in order to ultimately be successful.
Next you need to determine that the idea is big enough to make the journey worthwhile. Most startup technologies are disruptive so the market opportunity that comes with that disruption needs to be large enough to justify the effort to get there.
Finally you need to understand the intellectual property (IP) potential for the idea. If you can protect your IP from competitors through patent applications or other means , you will have both a freedom to operate as well as a valuable asset to licence, trade or sell in the future.
Those are four of the most important ‘red flags’ to watch for in the initial meeting with the founder(s). It’s important to check these aspects off before proceeding further. No angel can pick a ‘winner’ with any startup or founder at this stage and no founder deserves to be working with an angel who doesn’t understand these basic requirements.
When and if you have cleared these hurdles there are a series of more granular measures you will need to determine, but these in my mind are the first four.
Cheers!
As a venture capitalist, what are some red flags that would make you reject a startup immediately?
There will be only one red flag:
if I see that a startup will not be able to create its own brand.
stupidity
lack of understanding of business
conduct and manners
attitude
and the list goes on!
I will not try and compete with all the lists, which have many possible red flags listed. I’ll focus on the red flag I see most often when listening to founder pitches—Lack of a business model.
I often see startups with a great idea, appropriate team, go to market solutions, etc. but lacking any insights on how to make money. After having your great idea, please spend a lot of time figuring out how you will get customers to pay you a lot of money over a period of years that leaves you with a gross margin above 50%—the higher the better. Everything else is secondary to the right business model.
- Dishonest or low energy founder
- Product exists but company can’t close sales (probably no big market)
- Revenue model is complicated
I would not take a startup that:
1. Has no management team
2. Has no market (what they are doing is completely new, done by nobody and there is no particular demand in the market)
3. Is just another me-too with a very small differentiation
4. Has an interim solution to an existing problem (i.e will solve some component of it)
5. Is too expensive to bootstrap
6. Doesn't do something I believe in myself
7. Requires an acquisition to reach scale
Startups and venture capitalists need each other, but VCs especially are looking for a good fit before providing funding. It can be tempting for decision makers at a startup to move fast and furious, and ignore some of the details that can make a big impression on investors. Here are some things that can really mess up your chances:
- Having a lackluster founding team doesn’t give VCs much confidence in your company. The founding team needs to prove that they believe in the startup by presenting with passion, adaptability, and good team dynamics. Investors look for previous success by members of
Startups and venture capitalists need each other, but VCs especially are looking for a good fit before providing funding. It can be tempting for decision makers at a startup to move fast and furious, and ignore some of the details that can make a big impression on investors. Here are some things that can really mess up your chances:
- Having a lackluster founding team doesn’t give VCs much confidence in your company. The founding team needs to prove that they believe in the startup by presenting with passion, adaptability, and good team dynamics. Investors look for previous success by members of the founding team and/or a mix of different skills. If the founders aren’t inspiring confidence, they need to start working harder.
- Overpromising is a quick way to turn off investors. They are going to want to know when they can expect a return on their investment. But if you try to tell them what you think you can do, they’ll either see through your lie or found out when they don’t get the promised results. Instead, it’s better to let them know your realistic expectations based on what you know.
- You’re doing something that absolutely no one else is doing. Innovation and a unique angle are one thing. But if you have zero competition, VCs are going to question the validity of your startup. They want to invest in areas with proven success.
Here are a few thoughts:
- An idea and not a company—we get approached often by founders with an idea who expect us to do a lot of heavy lifting (money, hiring a CTO, developing a business plan)…that’s not our job, beyond helping founders in the process. Lesson: have a company, not an idea, to present
- No Value proposition— a good startup, as Marc Benioff says, is the intersection of a fantastic product and real market needs (paraphrased). Lesson: be sure you can clearly articulate why customers will buy your product.
- Lack of Industry Experience—when a founder approaches me with a startup that will
Here are a few thoughts:
- An idea and not a company—we get approached often by founders with an idea who expect us to do a lot of heavy lifting (money, hiring a CTO, developing a business plan)…that’s not our job, beyond helping founders in the process. Lesson: have a company, not an idea, to present
- No Value proposition— a good startup, as Marc Benioff says, is the intersection of a fantastic product and real market needs (paraphrased). Lesson: be sure you can clearly articulate why customers will buy your product.
- Lack of Industry Experience—when a founder approaches me with a startup that will ’totally disrupt a market’, the first thing we ask is whether they have any industry experience. Lesson: no industry experience? why should a VC listen to you…
Here’s a couple:
- Plan not ambitious enough - we need to believe we can return $100m+ to the fund with every deal; you can’t do that with $5m year 5 revenue. Doesn’t mean it’s not a good business, it means it’s not a fit for VC.
- Plan too ambitious - year 1 revenue, $500k, year 2 revenue: $50m, year 3 revenue: $250m. Founder either doesn’t believe this (see next point), or has completely taken leave of his/her senses - in either case, hard pass.
- Lying or shall we say, being very deliberately very misleading about certain things - examples include trying to pass off non-recurring manual services rev
Here’s a couple:
- Plan not ambitious enough - we need to believe we can return $100m+ to the fund with every deal; you can’t do that with $5m year 5 revenue. Doesn’t mean it’s not a good business, it means it’s not a fit for VC.
- Plan too ambitious - year 1 revenue, $500k, year 2 revenue: $50m, year 3 revenue: $250m. Founder either doesn’t believe this (see next point), or has completely taken leave of his/her senses - in either case, hard pass.
- Lying or shall we say, being very deliberately very misleading about certain things - examples include trying to pass off non-recurring manual services revenue as recurring non-manual SaaS revenue, trying to pass off GMV or GTV as net revenue, or trying to pass off the army of contractors in India or the Philippines as “AI”. It always gets found out eventually and it just wastes your time and mine.
- Playing the FOMO card too obviously - “we have x term sheets and we’re presenting to Sequoia IC tomorrow.” Very easy for us to prove or disprove and nearly always BS.
- Founder demonstrating a lack of understanding of the market - this most commonly presents itself as “we have no competitors” or similar. If you really have no competitors, your problem probably isn’t worth solving. If you don’t know who they are, that’s even worse.
- Founder unable to articulate the value proposition. Honestly, if you can’t get me (a relatively smart individual who is trying very hard to understand what it is your business does) to understand what your business does in the space of half an hour or an hour, how are you going to explain it to your customers?
I've been in my current job over 15 years, so maybe I'm not a great person to answer this. That said, here's a few suggestions, mostly having to do with if I would take a job there:
- A product or service or business model you don't believe in. That doesn't mean it has to save the world, on the contrary almost all of my career has been spent at companies that serve advertisements. But you'll find people work a lot harder in an environment with inspiring goals.
- A company, or boss that can't explain the whole business model to a layperson, the big picture, including where the revenue comes from, who
I've been in my current job over 15 years, so maybe I'm not a great person to answer this. That said, here's a few suggestions, mostly having to do with if I would take a job there:
- A product or service or business model you don't believe in. That doesn't mean it has to save the world, on the contrary almost all of my career has been spent at companies that serve advertisements. But you'll find people work a lot harder in an environment with inspiring goals.
- A company, or boss that can't explain the whole business model to a layperson, the big picture, including where the revenue comes from, who the customers are, etc. If they don't have revenue, and can't tell you how they plan to get revenue, run away.
- A company with more than a small number of rounds of financing would be a red flag for me. If you have products or services for sale for more than a few years that are making money (and they should by then) and you have more than 30–40 employees, and you're looking for a fourth round of investment, there better be a damn good reason. I'm not walking away just on this, but I am suspicious.
- A company with only one or two customers showing most of the revenue would scare the willies out if me.
- A company that can’t make up its mind what it wants to be when it grows up. A good company will have great focus, not be chasing completely unrelated squirrels. That’s not to say a company can’t develop new products, but if you’re a hardware company and a website hosting company, that would worry me.
- An product, or a job offer “too good to be true”, if it's rocket science, they better have a legit rocket scientist on board. If they're re-inventing the wheel, I would want to know why.
- Working cheap or free on the promise of future riches. Actually this one is iffy. When my company first started, all of us were previous employees coming from the same failed dot-com. We were all given our same salaries, but we were offered 50% more stock if we took a 10% pay cut. Wish I'd taken that deal.
- No technical co-founder
- Has not quit current job to work full time on new venture.
- No experience in category (broad: if startup is hardware focused, need hardware shipping experience. if health tech, need industry experience. etc.)
- Is cynical/doing it for $ first. The “why” needs to be personal and the problem being solved needs to be personal.
- Large salary demands.
- Lack of references.
- Inability to attract top level talent as co-founders.
My number one red flag is when the founders or main operaters do not have hands on business experience. It’s become all too common for business owners to solicit investment before they really even understand the fundamentals of the business they’re in—or even business in general. I...
In the late ’90s and early 2000s, I was fortunate enough to sit in on a number of pitches to a fairly large venture capital firm, my role was to pick apart the operations and tech side, but I got to see those red flags in all their glory.
Weak Personnel.
This one I heard a lot, I always heard the same comment, “we are investing in people and I don't see a strong team here.”
This really highlights the whole - an idea is worthless without correct execution.
I heard a number of pitches that were awesome, but the team around the idea simply were weak.
Lack of Knowledge
This was surprisingly common, the
In the late ’90s and early 2000s, I was fortunate enough to sit in on a number of pitches to a fairly large venture capital firm, my role was to pick apart the operations and tech side, but I got to see those red flags in all their glory.
Weak Personnel.
This one I heard a lot, I always heard the same comment, “we are investing in people and I don't see a strong team here.”
This really highlights the whole - an idea is worthless without correct execution.
I heard a number of pitches that were awesome, but the team around the idea simply were weak.
Lack of Knowledge
This was surprisingly common, the thing up this awesome idea, fall in love with it and just assume there is a market for it and the market will pay for it.
This is the main reason I tell any entrepreneur nowadays if they are looking for funding is to make a working prototype and make some sales.
I speak about the importance of having the right team in order for success on my YouTube channel here.
I’m not a venture capitalist but invest in earlier rounds.
A few that have put me off (tangible examples) in deals I might otherwise have done.
Getting in to a meeting, as requested by the startup (i.e. they approached me) then asked me to pitch and explain my background. Then asked if I would invest straight away. I said no. Then sought to get out of that meeting as soon as possible.
Goosing the numbers, it’s ok to sell a vision for what it can be, but when the numbers are just lofty with an expectation because it’s big we’ll get a slice. Grounding the vision in to your near term execution plan
I’m not a venture capitalist but invest in earlier rounds.
A few that have put me off (tangible examples) in deals I might otherwise have done.
Getting in to a meeting, as requested by the startup (i.e. they approached me) then asked me to pitch and explain my background. Then asked if I would invest straight away. I said no. Then sought to get out of that meeting as soon as possible.
Goosing the numbers, it’s ok to sell a vision for what it can be, but when the numbers are just lofty with an expectation because it’s big we’ll get a slice. Grounding the vision in to your near term execution plan helps a lot.
Not addressing any elephants in the room, or curveballs which are evident. Or brushing them aside. Again, it’s good to be optimistic but if there are known hurdles, not addressing them with a clear game plan increases uncertainty.
Focus on why your users would adapt your product and bring it to them. Also make sure you’re first investment backers are potential users of your product. That’s how you work on your success as an entrepreneur.
VC funds reject good ideas for the wrong reasons and fund bad ideas for the reasons they can explain. Reasons that sound good even if they are the wrong reasons.
Anybody who says “And best of all, we have no competition!”. If you say that, then that means one of two things. Either (1) There is zero demand for what your startup does; or (2) You don’t know how to use Google.
No traction
Low profit margin
Questions about leadership, finances, the unique appeal of the given product(s) or service(s), the competition….
A CEO that cannot articulate the business, the product, the customer and “why he will win”…. in the first 20 minutes. If the CEO does not know or cannot sell, that is a huge red flag. Secondly, a valuation that is unrealistic for a start-up and a CEO that is unwilling to consider a realistic valuation - will generally immediately shut down an introductory meeting. Finally, the business must have a defensible strategy to capture a meaningful share of an enourmous and growing market, otherwise the upside potential may not be significant enough to warrant the time and risk.
Realistic growth projections
There are no hard and fast rules to this and you’ll likely hear alot of different opinions depending on who you speak with. That only underpins the fact that investors have many different attitudes to startups. The best way to manage that is to research the investor you’re approaching; be smart and focused about who you’re trying to raise money from and why. Simple things like looking at their portfolio or work history will give you an indication of what their interest areas are. That’s probably the #1 mistake I see when getting approached. Not interested in working with someone who’s just loo
There are no hard and fast rules to this and you’ll likely hear alot of different opinions depending on who you speak with. That only underpins the fact that investors have many different attitudes to startups. The best way to manage that is to research the investor you’re approaching; be smart and focused about who you’re trying to raise money from and why. Simple things like looking at their portfolio or work history will give you an indication of what their interest areas are. That’s probably the #1 mistake I see when getting approached. Not interested in working with someone who’s just looking for a cheque. Here’s an article I wrote which might be useful for you.
Here’s a more direct answer to your question:
1. Unprepared - no pitch deck, just an idea
2. Too aggressive - If I’m interacting with someone for the first time, and they ask for money right off the bat, that’s a hard no for me. It’s unprofessional.
3. Have not done their research on me - to my point above, I’d expect anyone approaching me to have a reason why they want to work with me. If they start out asking about my background etc, then it’s clear they’re just looking for an open cheque book.
4. No clear ask - this is the opposite of being too aggressive. You’ve walked me through your idea, you’re leading me to an ‘ask’ but stop short and leave it hanging. Chances are you aren’t ready for that.
5. Can this team win? - ultimately, I’m backing Founder teams. I need to believe in you because you’re amazing, you know your industry incredibly well, you have some secret no one else has. Not having one of these isn’t a dealbreaker but you something to build on.
A different set of red flags:
- The founders have little business experience. Will likely struggle with unexpected challenges.
- They have not identified current or potential competitors and cannot articulate an impressive competitive strategy.
- They are not convincing that they can “scale the business” -i.e. beyond the point where the founders are needed to close all sales.
- Have unrealistic expectations of rapid revenue growth and/or potential cash flow contraction.
- Inadequate sales and marketing strategies.
- An inadequate or flawed financial model.
- Have not identified a strong legal resource.
Ordinarily, If I just don’t like them for some reason, I won’t want to spend time and money involved with them on anything they are going to be doing. There can be exceptions, though.
You don’t have a plan (or know) how your business will make money … and give me a funny look when I ask that question.
Businesses have to make money - if you are asking me and my investors for money, you need to know how you will pay them back plus a return. If you don’t take that as seriously as I do, then we shouldn’t do business together.
If we have a meeting and you are not focused. This usually means your ability to focus on the team or listen to the customer is not very good.
No data. Gut feel is important. But if you don’t have data and analytics to understand where, how, why, and what it
You don’t have a plan (or know) how your business will make money … and give me a funny look when I ask that question.
Businesses have to make money - if you are asking me and my investors for money, you need to know how you will pay them back plus a return. If you don’t take that as seriously as I do, then we shouldn’t do business together.
If we have a meeting and you are not focused. This usually means your ability to focus on the team or listen to the customer is not very good.
No data. Gut feel is important. But if you don’t have data and analytics to understand where, how, why, and what it means, you are like a lot of gut feel businesses … they usually miss a ton of opportunity and can’t compete.
I’m not a VC. I’ve worked closely with dozens of them over the last 20 years. I also note that I see excellent, detailed and informative answers here, already listed.
I’ll add one more thing:
The number 1 question I get over and over from investors, is … “how quickly and effectively can we get the founder out of the way and get a professional into place to drive business development?”
The first question. Every time. Honest.
There’s a reason for this. The founder (typically) is completely convinced that he or she, is an expert in this kind of business (social media etc.)
They aren’t. They’re an expe
I’m not a VC. I’ve worked closely with dozens of them over the last 20 years. I also note that I see excellent, detailed and informative answers here, already listed.
I’ll add one more thing:
The number 1 question I get over and over from investors, is … “how quickly and effectively can we get the founder out of the way and get a professional into place to drive business development?”
The first question. Every time. Honest.
There’s a reason for this. The founder (typically) is completely convinced that he or she, is an expert in this kind of business (social media etc.)
They aren’t. They’re an expert in the hobby (social media etc.).
This “gap” is so present/intense that founders become seized by the perception that the investor “is trying to destroy my business” and they go around seeking guidance on “why the investor is trying to destroy my business.”
Honest. You can’t make this kind of insanity up.
So the first and often final, red flag is the founder is determined to be incapable of accepting this intrusion/intervention.
I’ve seen business after business destroyed over this issue.
They’d rather fight than switch.
Good hunting
Reminds Me: To paraphrase the great investor, Warren Buffett, chairman and CEO, Berkshire Hathaway : “We look for three things when we make decisions about people. We look for intelligence, we look for initiative or energy, and we look for integrity. And if they don't have the latter, the first two will kill you, because if you're going to get someone without integrity, you want them lazy and dumb.”