Don't hide or "massage" information when pitching an investor.
And more advice from Joshua Siegel, General Partner at Rubicon Venture Capital
Rubicon Venture Capital is a bi-coastal San Francisco – New York fund focused on backing software and internet technology companies in North America, the UK and Northern Europe, where they have developed extensive VC and business networks that can help portfolio companies succeed. They invest at the Late Seed, Series A and B stages.
1. Don't hide information. Don't massage information to make it look better than it actually is in reality.
If an entrepreneur is mislabeling or misstating revenue, as in bookings or commitments or something like that, they are not giving a clear indication of what really is happening. As a VC, we are going to find that. This happens all time; this happens every day. I see five thousand deals a year. Every day I see something where the information is not clear. An example is when entrepreneurs will stipulate bookings as revenue. Bookings are not revenue. Bookings are where people have said they are going to buy your product, but you haven't actually received the money. For example, you might have bookings in any one year of five million dollars, but you still owe four million dollars of product delivery on that booking. You may not actually receive that cash for another 18 months. So, you don't really have it. The other thing is when they stipulate to monthly recurring revenue or annual revenue with one order. You cannot expect that revenue to be there the following month. Understanding the revenue model is critical. Understanding what is really going on in a pilot versus an actual contract is also an issue. Being transparent about your customers is important. If you tell me IBM is your customer, and it is a tiny little division in IBM, that is misleading. If you tell me that you have a real contract with a manufacturer and I contact the manufacturer and find out it is not a real contract but a one-time purchase, that is misleading and a problem for us. Also, don't lie about a term sheet. If you say you have a term sheet, but you really don't, that's bad. Everything you say must be verifiable.
2. Don't set unrealistic valuations.
Valuations are tough because if it is an early stage deal, you are essentially setting a valuation or cap yourself. Then, you are trying to rally support around that number. That's okay, but you have to be realistic. If you set a too high valuation, then people won't be interested. And, if you go back at a lower valuation, the investor may not be interested because they have gone on to the next thing. So, you have to have realistic expectations and not just try to get the highest valuation you can. If you miss milestones, and you have to go back to the market to raise additional capital, people will be like, well it is a down round, and that doesn't look so good. If you didn't execute on the two million you got, what thinks you are going to execute on the next two million?
3. Don't reach out to an investor cold. Don't send investors deals outside of their portfolio scope.
We prefer double opt-in. You can always find someone to introduce you to myself. If you send me a cold email, unless it is right to the point and hits the push buttons, I am just going to send it right to my associate or I am just going to erase it. I just don't have the time. I don't answer pitches on LinkedIn because it is just too hard to do that. I am the number one venture capitalist on LinkedIn because I have more venture capital investments listed on LI than anyone else. So, people find me. But, find a warm intro. Make sure it is something that I am interested in. If you send me a healthcare deal, I am not even going to respond. We don't do healthcare. If it is an oil and gas deal, I am not going to respond. We don't do oil and gas. Not just for me but for anyone else, know your audience. If someone I knew sent me an email, even if they knew it was outside my scope, I would still look at it and tell the referring person that healthcare was outside our scope and we really can't be helpful. I know 2200 Venture Capitalists around the world. I will open an email from every single one of them. I look at it because I have to, and they do the same for me. It is professional courtesy. If you are an entrepreneur and you hustle, you can get to me. I may not give you a check because it may not be my thing. But, then you should ask, "hey can you introduce me to these three investors?" Do your work and tell me who you want to know. I will introduce you.
4. Don't send an investor outdated/deceptive information.
A lot of times the pitch deck is old. If you are three months or more outdated on your revenue numbers, that's a wasted deck. I don't want to see it. I want very up-to-date or the month prior numbers. If you have an incomplete team or if you are working at another company and sending the pitch deck out, you have to be transparent. It is okay if you haven't left your day job yet but make that clear. Don't put an advisor in your deck that is not really an advisor. Don't put in an investor that really isn't an investor. Sometimes I see Andreessen Horowitz or Sequoia in a deck, and they really aren't an investor. It is not the main fund, just some guy who can write a $25,000 check. That's just silly. While social responsibility is an admirable trait it's not a core business ethos for us. Companies we fund must have a solid revenue and unit economics model. Do the world good but do it with a respectable IRR.