How to assure yourself that no professional investor will ever want to invest in your venture:

I normally shy away from writing “don’t do this or that” because, while it’s compelling to learn from the negative side, it’s also a bit wearing in large doses.  Additionally, I intend this blog to be for entrepreneurs as a way of helping them to succeed, in some small way, and negative stuff is the wrong orientation.

Please pardon me today for breaking that rule.  I don’t think there’s a better way to present these ideas.

So, here are some thoughts on assuring yourself that professional investors will not be interested in your venture:

1.    Be unwilling to discuss any risks in detail.  Insist that the only risk is “finding true believers” to invest.  Proclaim to everyone you talk to that “once the cash is in the bank, there’s no risk at all.”

2.    Insist on raising all the money you are sure you will ever need, all at once.  This is especially good for true startups where there is very high execution risk and steep downside risk.  Try to raise $10MM all at once so that you “can get on with building the business.”  Dismiss staged investments and rising valuations based on results as “sissy stuff.”

3. Develop a plan to amass large fixed assets in plant and equipment prior to making any sales.  This assures that the $10MM will be sunk quickly. 

4.    Proclaim that “80% is committed” already so “take it or leave it.”  Do this early in the meeting so the weary investor can politely say, “I’ll leave it,” and leave. 

5.    Tell investors that “since we are all in this together,” you will issue all common stock with no preferences or debt restrictions.  Set the valuation very high so that if there is so much as a missed monthly milestone, any new money will be certain to cram-down all of the investors.  Absolutely don’t even consider any investment vehicle used by professional investors, like converitble debt or prefered stock.

6.    Try to get an NDA during the initial presentation.

7.    Use structures and investment vehicles appropriate for three friends opening a bar to raise money for a high tech venture.  This means no exit capability on the part of investors, reliance on a pre-appointed board of directors and management team with long-term fixed contracts, prioritization of insider debt in front of investors, and, overall, makes sure that every other sentence in your presentation starts with “Trust me…” For good measure, promise to share cash income “as soon as it makes sense to the founder.”  Of course, never consider vesting founder’s shares, or holding the CEO responsible for performance.  You are all buddies and want to make sure everyone knows “you’re doing all of this on trust.”

8.     Don’t do any work on alternatives to reduce risk.  When these questions are raised, sell the original idea more loudly.  Don’t consider early testing rather than building plants; make sure you don’t understand the industry.  Tell investors “there is no outsourcing in the industry,” right before they do a google search to find out that there is a $28Billion outsourcing capability.

9.    Use analogies about buying cars, opening restaurants, and doing deals with your brother in law to persuade the prickly investor that her fears are unfounded.

Comments

[panasianbiz.com]

You make excellent points here, and I hope that many businesses take a serious look at their practices, evaluating them to see if they are doing anything to inadvertantly drive away potential investors.