People who advise entrepreneurs over a decent chunk of time tend to have the kind of world-weary perspective you’d expect from someone who has seen so many startups succeed or fail. They know what can scupper investment opportunities and turn off potential investors.
Wayne Barz manages entrepreneurial programs at Ben Franklin Technology Partners of Northeastern Pennsylvania, an economic development program to foster new companies and job growth. It runs an incubator for life science and technology companies called TechVentures. In a blog entry for its website this week, he called attention to three things startups should avoid when talking to investors.
Non-disclosure agreements It’s a rookie mistake that Barz says about 10 percent of the entrepreneurs he encounters make — asking Ben Franklin and other investors to sign a non disclosure agreement. “We do not sign NDAs at the very beginning of our relationship with you. In fact, it will be a fairly infrequent event for us to do so at any point.” He adds that investors want to get a better understanding of the validity of a company’s technology, depending on what it is. Initial conversations focus on issues like where and how that concept fits, who the customers are that would use it and how the company would sell it to them.
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Virtual teams Just because social networks like Google+, Skype and e-mail help people connect with each over great distances doesn’t mean it’s a good way to start a company. You need to have at least one room where you and your staff can meet. As Barz’s puts it: “A serious business has a founding team and that team is in a room together often. You can build a functional prototype, a beta site, or a proof-of-concept working from two or more garages or kitchen tables. But you cannot build a serious, scalable business from them.”
Audacious claims like you have no competition Investors see right through this sort of boast and will make a mission of proving you wrong. As Barz points out: “Probably two-thirds of the founders I work with have uttered this to me, and it has been untrue every time.” Ouch. Investors want to know where their money is going so count on them to do some due diligence. If they’re unfamiliar with your sector chances are good they know people who are. And between the Internet and conversations, they’ll have their answers pretty quick.
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