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What Investors Actually Hear

Are you accidentally sending the wrong messages to investors?

Founding a startup takes grit, determination, and resilience. Founders work to build their company day after day after day. They know everything there is to know about their market and work hard to articulate the opportunity to investors when seeking capital to fuel their company’s growth. But sometimes, the way a founder describes their efforts and traction throughout the fundraising process doesn’t quite reach an investor’s ears with the intended meaning. A well-meaning founder may begin talking an investor out of making an investment because of misunderstandings in communication.

Let’s explore three common phrases often used by founders during investor pitch meetings that don’t always deliver the desired meaning in the mind of the investor.

"We've accomplished all our traction to date without spending any money on marketing."

What the Investor Hears: "We haven't even begun to test paid channels yet, so we'll be learning from scratch about paid marketing using your investment dollars."

In this instance, the founder wants to communicate that the initial reactions from customers and word of mouth has been strong enough to without moving to paid channels yet. But the way it comes across most often is that the marketing piece of the startup hasn't been de-risked yet. Expensive mistakes will be made in this area as a founder learns what works and what doesn't in paid channels. Perhaps the word of mouth will be so strong that the startup won't need paid marketing for a long time… but eventually it will be needed. It's up to the investor in this instance to decide if the risk is worth it or not.

"We don’t have revenue because we’re working on our technology, so I haven’t been trying to sell yet."

What the Investor Hears: "I like working on the technology more than I like selling."

In this example, the founder wants the investor to focus on the big opportunity the founder sees because they are at the earliest stages of building their company. But all investors know revenue is a good thing in a startup. Always. When a founder can show there is revenue coming in, they’re proving that someone in the market is willing to pay for the solution. This is an important sign for an investor to see. Founders who can show revenue are more likely to secure investment and command higher valuations. But early-stage startup founders who say they “haven’t turned on sales yet” or “haven’t been trying to sell yet” can be a red flag to investors.

An investor may question if the startup is building something the market wants. In the earliest days of a company, the strongest signal of market potential is when customers will pay for a solution even when the solution isn’t perfectly built or full of features yet. If a founder comes across as being nervous to sell or really excited about the process of building instead of the process of selling, conversations with investors won’t go as planned.

A startup can still raise capital if it doesn’t have revenue, but founders who are able to raise capital without revenue are proving their solution is desired by the market in other ways. This may include having a signed letter of intent (LOI) from a potential customer to show the product will be purchased when it’s ready. But getting to an LOI with a potential customer involves sales. Founders are typically expected to sell in one way or another.

"We have an amazing group of advisors.”

(Usually while showing an advisor slide in the pitch deck.)

What the Investor Hears: I’ve been successful at getting these amazing people to let me list them on my advisor slide (probably by giving them equity) but they’re not interested enough to invest in the company.

In this scenario, the founder wants to show there are fantastic people involved with the startup. These could be celebrities, well-known entrepreneurs, or top-level executives from household-name companies. But listing these advisors is a two-edged sword. It can be a good thing as it signals a founder has a powerful network. But on the other hand, an investor will wonder why these powerful people are not investing in the company. Do the advisors not believe in the company enough to invest their own money? Are they getting equity in exchange for being listed in the pitch deck? How involved are they? That’s a lot of questions to come up about something ancillary to the startup’s actual product or value.

This is a controversial stance (and not all investors think of it the same way), but I’ve personally seen the advisor slide go wrong more times than I’ve seen it help build a founder’s case. If you decide to highlight advisors, make sure you are ready to answer questions about their roles and whether they are personally invested.

In each of these three examples, the founder was genuinely trying to communicate something good about their business but ended up communicating a negative. Understanding the point of view of the investor can turn the communication from deal-breaker to deal-maker.

Role Reversal

So far we’ve focused on things founders say to investors, but let’s turn the tables and look at an example where the investor is the one communicating to a founder.

What the Investor Says: "I’m really impressed by what you’re building."

What the Founder Hears: "This investor is about to send me a term sheet!"

Founders are continually looking for hopeful signals and when an investor says anything positive, founders often jump to conclusions that an investment is coming.

One of the reasons investors have an enormous amount of respect for the challenges of being a founder is because they need to raise money for their fund in much the same way a founder must raise money. Investors know first-hand how difficult the fundraising journey is and are generally complimentary of founders for persevering through the process regardless of their interest in writing a check.

When an investor says something nice about a founder or their company, it’s best to accept the compliment without reading into it. A statement of support is not a declaration of intent to invest. Trust me, when an investor is excited to invest, you will receive more than just some kind words; you’ll get a term sheet or request for due diligence documents to move the process along.

Elizabeth Caven
Elizabeth is an experienced entrepreneur-turned-fintech-investor. When not working with startups, she can be found remodeling old homes with her husband or embarrassing her four kids by cheering too loudly at their sporting events.