You Know What Really Grinds My Gears- Investor Pet Peeves

Hi, everyone. Thank you for joining me here today. This is the Prepare for VC presentation for the Found Something group on January 2nd, where we're going to share insights into what really grinds the gears of investors. Good. We're going to go into pet peeves on startup presentations that investors find, and I'm happy to present the lesson here to you today. I'm Jason Kraus, the CEO of Prepare for VC, which is a startup consulting firm based in Boston, and I'm also an active, an active member of the angel community as an investor through the EQX Fund, Boston Harbor Angels, and Equity Venture Partners. And for all the local members as well, feel free to join me at Startup Grind events and some of the other Meetup groups I host around Boston. So I wanted to dive in. Actually, this is a— I did a series of interviews with several different investors, combination of venture capitalists and angel investors around Boston, to figure out what some of their biggest pet peeves were, what really grinds their gears, and basically things to avoid. at all costs when you go through a startup presentation, whether it's more of a casual meeting with an investor or a formal 10-minute presentation to an angel VC group or a longer in-depth discussion. Just did some interviews to highlight some of the key points. One of them, I interviewed Rob McCall from 406 Ventures. He told me it really grinds his gears when founders paint a completely perfect picture and aren't willing to open up with the challenges they've had to overcome and are still facing. It's very easy to spot someone who's dancing around a direct question. Nothing is ever perfectly up and to the right, and that's okay. We want to have an open and honest discussion, and that's how we can be helpful. So one of the keys here is that investors, a lot of them have been entrepreneurs themselves. They've gone through the struggles, and either in their own businesses or investing, like watching and mentoring startups, advising them, sitting on boards. If there is a challenge you face, they're one of the key people that you can turn to for help and you wanna see them as more of a resource than someone to rely on. someone you avoid coming to with your challenges. I mean, that said, you don't want to— you still have to showcase the positive side of the business, but challenges you face are also a reason that the next person— if you basically paint a clear, perfect picture, easy to do, everything's green, you know, nobody can— or basically there's no issues, it doesn't really show why the next person couldn't just come in and do the same thing that you've done. So showcasing some of those challenges also helps you differentiate yourself and say like, look, it was hard to get to where we are today. These are some things we've done. Some things other people struggling might have a difficult time to do. And, you know, we're in a better position because we've dealt with some of these. There's some obstacles we need to overcome, but that's why— there's a reason why you're asking for investment, you're asking for advice at this point. And, you know, it's okay to have further challenges you need to figure out. Another big one I got from Ben Lessauer. He does a lot of speaking engagements around Boston and is an active member of the Walnut Venture Group. He told me something that really grinds his gears. He gave me 2. The first one I'm going to cover here on this slide. It's that simply the expression of conservative projections appears in every pitch. And we know you think they're conservative, but we have yet to see a company achieve their conservative projections. So whenever that phrase is used, we simply smile knowingly at each other. And yeah, I mean, every, every company, you know, thinks they're, they're going to the moon, they're going to be the next Facebook, next Google. And some maybe, some if they hit a great acquisition, that's great. That works out well for investors. But yeah, basically the key here around the projections, whether or not you hit them, the idea behind them is having realistic— Realistic goals, challenges you set for your team, your company, and also knowing the relationships between, you know, how much— between all the costs you put into it, how you're going to use that initial capital, and what that'll get you as far as a return. Yeah. Will that bring you 10,000 users from your initial round? What is a user worth to the company? It's more about In these projections, it's more about the relationships rather than the relationship between the cost and future growth rather than the actual numbers themselves. And just saying it's a conservative projection, just sort of like a cliché everybody says about their own projections. Another thought he had was entrepreneurs telling them how much time and money they spent getting to where they are today. In hopes of supporting a higher company valuation. Doesn't really care if you spent years and millions building something that's only worth a dime. To give us more than a dime for it is nonsense. You need to look at what you've built and what its potential and price are and price it accordingly. We don't buy past expenditures, we buy the future. So yeah, one of the keys here, you know, um, Basically, the company's worth— yeah, it has— every company, when you go to seek an investment, you're giving up equity or even finding a cap on a convertible note. You're putting a valuation on that startup. And yeah, so what he's saying here is you value it based off of its worth. If you've made mistakes in the past, if you've wasted A million dollars or spent an extra year that, you know, even if it was a learning experience, that doesn't necessarily translate into the value of the company. That said, on the flip side, if you spent, you know, if you spent half a year building something it would have taken most other people or other companies 2 years to build, you should be valued for that too. One of the keys actually I've seen in a lot of companies valued by comparable businesses, by projections, by if you have revenue, multiples of revenue as well. But yeah, one of the keys I've seen in some other startup projections is like if If somebody else were to do this from start, find somebody, hire somebody as experienced as the founding team, get them to quit their jobs, build this, build all the technology, pay for everything involved with it. And what would it cost them to get to where you are now? So if it costs— And have them be at the same spot and be at the same place they are gearing up for the future. It costs $3 million and you're a $3 million valuation, then, and this company is in front of you, yeah, it's more reasonable that that's what the company is actually worth. The other lesson I learned from Riley Rogers of Valley Investments basically said it really grinds his gears when people don't do their homework. It's all for building relationships with investors, but it's so easy to find out what they invested and do some basic homework on the investor to find out if something is relevant, and not doing any homework is a bad start for that relationship. So yeah, there's a lot of great resources out there. Um, you can use Crunchbase, AngelList, or even the Yeah. Firm's own website to figure out basically previous investments they've done in the past, sort of link it to, you know, figure out what they look for in a portfolio, whether, you know, you're even on the— if they look at, you know, your type of businesses, if they're into SaaS platforms, if they're into cash flow products or pre-revenue. Basically, this can be digging on your own research. It can be looking up some of those startup companies they've invested in, talking with some of the founders, get feedback from them even before you make contact with a VC firm. Or even a lot of them also provide Podcasts, YouTube videos, post-events, events you can go to if you're a local company there. So yeah, basically just finding out all the background information you can do. It's also a great introduction, you know, maybe they've written a book or an article. If you can, you can talk about that in your introduction to them and sort of have common starting ground, then that adds a lot of value to the relationship and sort of sets you up in a better position to move forward with a company that you're seeking investment from. I talked to Sal Dahir. He's the host of Angel Invest Boston. If you haven't listened to the podcast, highly recommend it. You can download it on the Apple Podcasts or your local podcast channel. So what he told me was, you know what really grinds my gear? As expressed in one of his episodes, episode 1 by Michael Mark, there's always the temptation to pursue more than one opportunity at a time. Given minimal resources startup command, they need to hone in on the activity that gives them the best chance of success. However, the founders should avoid being so single-minded that they persist on a failed business plan too long. You will note this is a recurring theme on all podcasts because achieving the right balance between these two is really hard and founders agonize about it frequently. So yeah, this is a key issue. Basically, you do have to find the right balance between You know, being an entrepreneur, most entrepreneurs, founders have hundreds of ideas that can sort of take their business in a multitude of directions as it grows and scales. Basically, it's just great to have those options in the background and with unlimited resources, maybe You would build all of them, see what works and what works the best and has the most success. But if you're going basically as an investor, if you're looking to put, especially in the early rounds, if you're putting $100,000 into a company, you want to make sure That's getting spread to an area of focus. If you're trying to do 20 different things, give them a small amount of— basically funding 20 different ideas and managing all of those as a startup founder with a small team, you're not going to be able to build the same success you are if you— focus first and be quick to pivot into new ideas as they come along and adapt, listen to customer feedback, and sort of bring that forward in the next round. So like I know a few companies that have had basically, they've had really big vision presented presented some as— but they had a focused presentation. They presented basically their main starting point of the business, and then at the end, like a quick 30 seconds to a minute on some potential avenues for the future. And a few of these companies pivoted into their future avenues as they grow, but each one becomes sort of the main focus of the business at the time. And, you know, if it catches on, that's their— they continue off. It's hard to basically— yeah, it's hard to position, you know, something as the best at everything. You want to be the best at one thing and show that. Your team has the expertise to do it, your product's the right fit, and the market's ready to accept your vision. I also talked with one of my partners on the EQX Fund. He's the managing director as well as the CEO of the Boston Harbor Angels Group, Seattle Haber. He said it really grinds his gears when presenters are not excited and enthusiastic about their own business. So yeah, one example, like we've had, we've had some startups, or basically, yeah, some founders are really passionate. You can hear it in their, in their voice and their pitch. You know, when you ask them a question, they, they're not only telling you it's a great, a great question, you can sense they're excited to talk about it and continue. on with, you know, they want to live and breathe the subject that they are working on. Other ones like, you know, seem like it is more of a job to them. They, you know, don't like, whether it is, you know, don't like fundraising, which, you know, a lot of founders struggle with, or, you know, they just don't like You know, it's hard to tell if they are frustrated with the fundraising process or they are frustrated with their company, but just, you know, you want to be as upbeat and positive as you can when you are pitching your company something and your real passion that you started. Some other things, just From my own examples, it always sort of brings a damper to the pitch if you make excuses during the presentation. A lot of founders will say the timing is too short or give an excuse like, I don't really— during a 10-minute presentation, waste 30 seconds talking about how short of a presentation time they have and that they can't cover certain issues. We've even had some companies sort of say they're going to fundraise. They want to— they're tired of fundraising and want to close the round soon just so they can go back to work, work on their business, which in theory is great. We want the startups to— get their investments, get moving. But you never want to hear a founder say, listen, I'm just tired of fundraising, and it sort of brings into question their ability to bring in the next check on a future round. Also, some presentations, depending on the company, whether it's a really technical architecture for a tech company or a healthcare product, healthcare innovation, and has a lot of science behind it, sometimes the startup presents it more like a science project than an actual business. The founders want to know— I mean, the investors want to know the key ingredients that will make it successful, like what differentiates it technologically from the rest of it. But that should be a small portion of the presentation. The rest should be about the company as a business. What's going to make it something that people will buy, consumers will buy, businesses will buy, or a future company will acquire? And yeah, that's about showcasing the market size, the need for it, The team, any advisors you brought on that will make this a successful business, and, you know, the financial and business aspects of the company as well. Big pet peeve is fighting constructive feedback. A lot of times, like in the Boston Harbor Angel Suite, for example, at the end of every screening meeting, we offer Every company that comes in gets feedback, constructive feedback from the group. Basically send out the entrepreneur out of the room that just pitched for a few minutes, talk about the company, gather feedback that when we bring back the entrepreneur into the room they can hear from the investors what went right, what went wrong, and what's really needed. For a future presentation. Sometimes the future presentation is the following week at the regular or the full Boston Harbor Angels investment meeting. Sometimes it's just, you know, they're not invited back, but they still get the feedback to use for future investor pitches. With other groups. But yeah, just being able to see they're taking that feedback, accepting it, and whether it's something they agree with or something they just say they're going to dive into and research, take the time, take some time to listen to the investors and research whether or not— they were right or have a real reason why it might not work. But knowing, yeah, just having an open mind and show you're actively listening comes a long way. And if you are one of those companies that comes back and meets with the investment group for a second time, if you can showcase that you used some of their advice Maybe included a slide they said they were missing or, you know, got in new users in an area, additional traction in an area that they thought was missing before. It really helps to show that their ideas made a difference, that they're already sort of invested and part of this company. Even before they make an actual investment. And on that side too, you should never really burn bridges with an investor that says no. A lot of times investors— and it can be really frustrating— investors can say, you know, it's a little too early for our group, we need more traction, we need to hit 10,000 users or whatever. Whatever reasons they might have at the time. Sometimes it's even just we're focusing on— we have 3 deals we're wrapping up right now and there's not enough of our time we can allocate to, or this isn't at the top of our priority list, which is frustrating to hear. But you never know. You never know when you're going to need that investor in the future. Obviously, you don't want to accept and take on an investor you don't like the way, or basically don't like to interact with them because they are part of your business. But sometimes the relationship takes more than an initial pitch or an initial— Few meetings to develop. If they've seen you, you know, it's not usually a one-and-done. If they've seen you, they sort of like your idea and do tell you, you know, follow up with us, then basically you can— if you come back with a lot of traction, you could get interest from them. And also, you know, you'll be at a higher valuation. They're penalized for missing out on the early stage and you're rewarded for building up a great company. So yeah, there's no reason, no benefit from, you know, burning any bridges and you still have the opportunity to accept or decline any investments in the future. Just wanted to highlight one of my other consultants I work with, Terrence O'Brien. He's— yeah, he works for the Angel Capital Advisors Group as well and is a member of Prepare for VC. He mentioned that one of his biggest pet peeves is just simply in a pitch deck using the generic Microsoft PowerPoint templates that come preloaded without any customization or design effort on behalf of the entrepreneur. You know, never like to see— I mean, pitches, even, you know, a pitch like I put together today, I wouldn't want to see this as a startup presentation. Too much text. I'd want to see visuals of the product, of the market, like graphs, figures, more of a visual presentation that you can give and show to the investment group. Capture everyone's attention and basically have it be something they can understand, see what you're doing, why it's important, and where the real value is in a quick Whether it's a 3-minute rocket pitch, a 10-minute investor presentation, or a 30-minute discussion, just being able to visually and verbally represent why this is the next big thing they should invest in is real key. So with that, I'd accept questions. Yeah, I appreciate everyone for joining here today on this— on our Prepare for VC presentation and look forward to any comments or questions you have in the thread below.