Approaching Venture Capital Firms: 5 White Lies to Avoid
Looking for funding to get your invention off the ground can be a tough process; so, why make it any tougher on yourself? It’s not always financially feasible for inventors to fund the entire process themselves– outside funds can be critical for development. Angel investors are an option, but they can be difficult to get a hold of. Since they’re investing their own money into projects, it makes sense. They don’t want to be hounded by hungry investors day-in and day-out. Venture Capital (VC) Firms are another avenue inventors frequently consider. VC firms manage other people’s money and will typically invest for a period of three to seven years. A VC firm will look for a yearly return of 20 to 40 percent.
But, approaching a VC firm is a delicate art many haven’t mastered. Sometimes, inventors want to give a larger-than-life illusion and might hedge the truth. But, be warned: lying will get you nowhere. Often times, it will actually get you denied from the funds you’re requesting. Here are 5 deal-killing white lies all inventors absolutely need to avoid if they want funding from a Venture Capital firm.
White Lie #1: “We have no competition.”
This is an easy lie for anyone to spot– especially those eagle eyes at a VC Firm. Everyone has competition. What inventors are really communicating when they say this is “we have no idea what we’re doing.” No one wants to work with someone who has no idea what’s going on.
White Lie #2: “We aren’t really looking for Venture Capital funding.”
Yes, you are, or else you wouldn’t be there. This statement is said by inventors trying to be coy with the the VC firm. But, they have what you want and they know it. By saying this (rude) statement out loud, everyone in the room is left wondering why the inventor wasted their time.
White Lie #3: “We’ve been to busy to conduct market research/write a business plan/do financial projections/etc. But we know our product is what the market wants.”
If an inventor hasn’t fully committed their time, reputation and finances to a project, why should the Venture Capital firm? Some VCs will tell inventors they don’t care that a business plan hasn’t been prepared of that there’s no market research yet. But, in reality, they’re only listening in case this really is the next big thing. How can someone know the market wants their product if there’s been no research? How can someone know their business will succeed if there’s not a business plan? They can’t. Inventors cannot make any guarantees– even with a solid plan in place.
White Lie #4: “We are partnering with Microsoft to…”
No, using Microsoft Word does not mean an inventor is partnering with Microsoft. Just like using an iPhone to make business calls doesn’t mean an inventor is partnering with Apple. What this statement communicates to the VC is that an inventor is exaggerating the facts to sound impressive and, in turn, the inventors credibility instantly goes down.
White Lie #5: “We are the leading product/service in this category.”
How can any product or service be a leader when it hasn’t even been funded? Like above, this statement communicates exaggerations and ruins the rest of an inventors credibility.
These 5 white lies don’t just apply to asking for funding from VC firms. No one likes to be mislead during a sales pitch and they’ll be put off almost immediately. Even if your product could be the next big thing, they won’t invest because there’s not trust. But, if you don’t panic, provide the information you’re being asked to provide, be honest with yourself about the viability of your invention and be diligent and patient in your funding search, you’re likely to find someone willing to invest in you, your invention and your brand.
At Alotech, we partner with you to find creative ways to work within your budget. If you’re interested in spending your capital wisely, give Alotech a call! Because we work with inventors with a range of products and needs, we have the resources and knowledge to help you budget successfully. Contact us today by calling 919-842-3599, or visit our contact page and fill out the form.