Why Investors Say No

Lloyd: Hit me with it! Just give it to me straight!  I came a long way just to see you, Mary.  The least you can do is level with me.  What are my chances?
Mary: Not good. lloyd-300x300
Lloyd: You mean, not good like one out of a hundred?
Mary: I’d say more like one out of a million.
Lloyd: So you’re telling me there’s a chance… *YEAH!* Lloyd Christmas – Dumb and Dumber

So being in this space, I hear a lot of stories (too many, unfortunately) about how some startup crashed and burned a la Tom Cruise in Top Gun at an investor presentation.  Some have gotten the polite – “come back when you are further along” and some just the “we will get back to you.”  With hindsight, when you then ask some pointed questions to these teams, you realize they might have been a tad optimistic based upon how they approached the fund raising process.  Like old Lloyd Christmas, they thought they had a chance, but did they?

So, boys and girls,  what lessons can we learn that will perhaps make us have a better chance with a financing source?  What are the reasons investors say no?  Here are my top five.

  1. Right pitch; wrong investor.  Two big errors here.  The first is talking to the wrong investor for your stage of development.  This is most common with early stage companies – they wrangle a meeting with a VC when what they need is an angel or seed-funding source.  Make sure you talk to an advisor to get in the right pew.  Second, don’t assume because they did one deal in your space (you should know your investors’ portfolio) they are interested in your deal.  Like all smart investors, diversification is part of their strategy.
  2. Wrong or incomplete team.  You do not need your organization dance card filled, but two or three key slots should be hired or known.  And, as much as I love CFO’s, that is not a key role at this juncture.
  3. No sustainable business model.  I love my daughter but her model is selling a device to veterinary practices that only need one or two units, has no replacement parts and lasts forever.  The good news is she wanted a “franchise” business – the type that just provides some additional income – and this fits the bill.  But, she will never go beyond that stage of growth.  If this is your model, think again about approaching investors.
  4. Too “me too.”  You need to cure a pain and if someone else has done that and your differentiator is that you can do the same thing with one less step, think again about your model.  If you always describe your product as “it’s just like a Xerox” (dating myself badly here) well then…
  5. No traction.  This happens especially with multi-channel revenue streams.  Concepts are not enough – the “build it and they will come” syndrome is not a winner.  If you are getting less traction than bald tires on an icy road, solve that problem first.  Money is not going to help you.

While there have been many entrepreneurs who have failed with investors, perhaps you can learn from their mistakes and improve your chances of being successful.  Stay positive and keep innovating!


Top 10 Reasons Why Startups and Early Stage Ventures Fail

Quote: “Houston, we have a problem.”  From the movie, Apollo 13


At the risk of sounding like a David Letterman skit, I would like to present my Top 10 List for this category.  By the way, apollo13-box-art-front_GGIDu_28802there is no scientific research to support this and I realize many others have published similar lists.  I just reflected on my 35+ years of experience with startup/early stage entrepreneurs and where I have spent the most time working with them to rectify some significant shortcomings.  So, you might say this is my “if I only knew then what I know now” list.  I hope there is a nugget or two for you to use… so, let’s see what the list brings:

10. Loving the product/service more than the customers.  This is the infamous “build it and they will come” syndrome. These ventures are usually DOA – it’s just that the entrepreneurs do not know it.

9. Unaddressed bad equity splits.  Cutting up the pie is tough enough – giving it to the wrong people for the wrong reasons is often fatal.  It is tough to move forward when you are focused on significant internal matters like equity distributions.

8. Going it alone.  This is the equally infamous “no man is an island” syndrome.

7. Talking more and listening less – to customers, potential financing sources and advisors.  God gave us two ears and one mouth…

6. Ignoring warning signs – there is a reason your body feels pain – it tells you something is wrong.  Problem signs in a business are the same and at times we react the same way we do to that pain in our body – ignore it and it will go away.

5. Bad acquisitions (usually the first one) – either deals for the wrong reasons or good deals with poor execution.

4. Growing too fast – probably saw more ventures go down because of this than those that had a fall off in business. Growth makes you feel good and can hide strains on your venture like not enough people or funds.

3. Not knowing when to get out – never get in without an exit plan

2. Inadequate financing – what was the last thing you did personally or in a business that came in on or under budget?

And the number one reason why startups and early stage ventures fail? – PEOPLE – usually the wrong ones in the wrong roles preventing execution of the vision.  Every financing source I have ever spoken to looks at management over product. When picking your team avoid the “yes man” syndrome.  I had a client who was a real control freak and his favorite saying was “I always admired a subordinate who could stand up and say – you said it chief.”  His venture hit the dirt nap trail pretty quickly.  So, spend sufficient time developing the best team possible.

So there you have it. Good luck and keep on innovating.

Money, Money, Money, Money – Money or Business Pitch Fatal Flaws

Quote: “It’s just business; nothing personal” – Mario Puzo from The Godfather


iStock_000016249315XSmall-425x272I had the chance to review five pitch decks this week (a bit slow; it is the summer) from startups looking for funding.  Now, if you are assembling a “pitch,” there is an abundance of guidance available about basic contents.  Many financial sponsors and angel investors have them on their websites and if that fails, you can use our “Perfect Pitch.”  You can find this by clicking through the Entrepreneur Power Play Book tab on this blog (just follow the “Rookies” string.)  Many startups ask us to critique their “deck” and offer our comments and observations.  We are always glad to do so (gratis) – our standard caveat is like the quote from The Godfather – the comments are just business – nothing personal.  Almost all are taken in the spirit in which they are offered.

I must admit, I am usually impressed by the passion and creativeness of theses presentations, but I also focus on their principal purpose which is to raise money.  So, what surprises me the most?

Very often, it is the lack of two elements which I think are fatal flaws – and both revolve around what the O’jays proclaimed – money, money, money, money.  First, “how much do you need?” and second, “how are you going to make it?”  Why a startup thinks any investor, at any level, has no interest in these two points remains a bit of a mystery to me.  Now, I know what you are thinking… he is a CPA and, of course, he wants to see detailed financial projections.  Not so fast, grasshopper, what about even a half-baked conceptual discussion?

If you are asking for money, why not make three simple basic points – how much you need, how you are going to use it and how it will help get you to the next level.  By the way, the odds of all of this working out as you planned are slim to none, however, investors want to know that you thought about it and have some fiscal discipline to, at least, venture how you will manage these precious resources.

The old “if you build it, they will come” theory of a business model is also DOA in the eyes of an investor.  Let them know your estimates of market size, unit sales and revenue per unit.  If you are providing a transaction based service and think you can get $5 as your “take” on each deal, let an investor know what you are thinking and why.  Some undeveloped thoughts alluding to how this may one day become a revenue stream are not going to help your cause.

So, keep those creative juices flowing and please continue to dream and innovate.  Just remember that while it is great to fly at 30,000 feet – keep in mind you do have to land the plane every once in a while.


Ownership Writes – The Purpose

“I am thankful for all of those who said NO to me. It is because of them I’m doing it myself.” – Albert Einstein

I have had a passion for entrepreneurs since I was young.  My first exposure to entrepreneurship was as a teenager working for a neighbor (Teddy) who, believe it or not, actually recycled cardboard in the 1960s.  The concept was simple.  Large stores and factories had to pay to have garbage removed including cardboard packaging.  Teddy took away the cardboard for a cost below what the garbage haulers were charging and took it to certain paper mills.  Virgin paperboard was at a premium so certain mills took used cardboard and used it to make non virgin paperboard.  Teddy also got paid for the cardboard he collected.  Ingenious and, trust me, Teddy was not attending MENSA meetings.  Everybody else I knew in the neighborhood had a job; Teddy had a business and that is where it started.

As time went on, I got to know more business owners.  I worked in delicatessens, as a painter, in factories and on Wall Street and always enjoyed understanding how businesses started and how owners were handling the issues they faced.  I remember talking to Teddy as we drove from stop to stop and finding out about all the things that were on his mind – – including asking me to talk to his son about joining the business.  (I think that was my first succession planning assignment – and it was a success).


So, for 35+ years, I have been consulting with owners of companies at every stage of growth – – from startup to high growth to mature.  I realized early on at times owners just needed someone to talk to about what was on their minds.  (I will cover overcoming the loneliness of an entrepreneur in the future.)  I learned something from every one of them and started to organize my observations and use them in my practice while maintaining confidentiality.  People techniques, funding advice and most important of all, studying how owners dealt with their own unique world.  Very often isolated and misunderstood, I had the privilege of consulting, comforting and guiding them throughout my career.  It allowed me to develop tools, processes, tidbits, etc. to help them along the journey. There were a lot of successes and some failures; more than a few life lessons and some “Dutch uncle” advice but my goal was always the same; to help the entrepreneur to succeed.

My instinct was to collaborate with others to convey some of what I had learned, but I could not seem to get any takers.  So, true to Mr. Einstein, I decided to strike out on my own to share my thoughts; thus the idea of this blog was born.  I call it “Ownership Writes” – a name developed by my sister who is the pun master extraordinaire.  The name uniquely captures the purpose of this blog as only she could do.

I hope that over time I will be able to share some ideas, stories, lists or other insights that might help just one entrepreneur to move forward in some way.  As the Chinese proverb goes, “A journey of a thousand miles begins with one small step.”  My hope is for many successful journeys.