The Entrepreneur Insiders network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question, “What’s the worst thing you can say to a potential investor?” is written by Sharat Sharan, co-founder and CEO of ON24.
My number one rule when talking with potential investors is simple: Make sure you articulate a clear, achievable vision for your business. It may seem obvious, but you’d be surprised how many young companies make claims that are simply not achievable.
It’s understandable, really. When you hit the fundraising circuit, it’s easy to get swept up in the excitement of it all—big-name investors, extravagant conference rooms, encouraging smiles, and handshakes all around. But once you start losing your grip on reality, it can be a slippery slope: One moment you’re overly optimistic or exaggerating how close you are to building a new product, and the next you’re talking about skyrocketing growth and the inevitability of your company’s success. And investors can generally see right through it.
Enthusiasm is good, but it’s also not very unique. Remember, venture capitalists see hundreds of founders every year—each and every one with as much vision and enthusiasm as you. They’ve heard it all before, and they have data on how often it works out.
The one thing you should always avoid when talking to investors is setting unreasonable expectations. At its foundation, the relationship between venture capitalists and entrepreneurs is built on trust. Many VCs estimate that upwards of 90% of early-stage startups are unable to raise a Series A investment. I truly believe that the companies that don’t get funding are the ones that investors don’t trust—investors don’t see how they can feasibly get from point A to point B.
It’s vital, therefore, to set realistic expectations with investors on what you plan on accomplishing, both before you need money and also once you have an investment.
How? Make sure your business model and product roadmap are what differentiate you from your competitors, and clearly state why your company is uniquely positioned to succeed. Lay out reasonable goals, with both product and revenue, for your business. Once you have achieved these targets months or even a year later, you’ll have built credibility and made a true ally with investors.
Therefore, before you go into any investor meeting, you should ask yourself: Is my company or product truly meeting a market need? If so, what problem are we solving for real businesses? How are we different from other companies that have approached this problem? How will I accomplish our business vision? Your answers to these questions will tell you what you should really be talking about with investors.
By undertaking this exercise at ON24, we realized the power of sticking to the fundamentals at the core of our business. Investors want to know they’re investing in a financially sound company with a tangible product vision. But they also want to know they’re investing in a smart business leader—one who is not just passionate about their product, but also about running a sound, scalable business. At ON24, we ensured that we were solving a real problem with our product and created a defensible business plan for getting it to market with the knowledge that, if these principles rang true, our company would be successful.
All in all, what we’ve learned since founding ON24 in the first tech boom is that companies go through peaks and valleys, as do entire industries. The best way to protect and grow your business is to keep yourself, and the value of your product, grounded. We worked to create a product that was vital to marketers in both the best of times and the worst of times. In doing so, we saw rapid revenue growth and received a $25 million investment from Goldman Sachs (GS).
Don’t just worry about the extravagant growth numbers and shiny products you may or may not come up with. Investors have heard it before. Don’t worry about your exit. Build a true business, and all these things will come.
