Red Flag list when pitching to a VC firm

Ever since I joined a VC firm, I have realised that there are many words/ actions (or lack thereof) help to build a holistic view of a company.

When viewing a company there are many verbal and non- verbal signals that give away how solid the team is in communicating its idea. Our previous blog on how non-verbal cues can impact your interaction with a VC firm can be viewed (here!)

While these aren't hard and fast rules, but when a company is going to pitch to a VC firm, it can work in their benefit to know which cues can stick out as a RED FLAG and its game over for them.

Founder front

• Unable to explain the business - If the founder is not able to explain the business model in the simplest way, then it would appear he/she hasn't understood the problem statement in the first place. Quality over quantity of words, always has more impact.
• Deflecting key questions - when a founder avoids important questions such as “what is the company’s vision in next 5 years?” or “how do you differentiate from the competition?” Shows two possibilities: either the founder is avoiding to answer these queries, or worse he doesn't know.
• Low on confidence- If the founder doesn't show his confidence for his :
• Product,
• Business model,
• Team ,and Timeline to deliver, it would show a lack of conviction. If you aren't convinced, why would the investors be?
• Overconfident/ arrogant demeanor - Well, confidence is a double edged sword. It's important to show receptiveness to criticism and/or suggestions. VCs usually like founders who own their shortcomings, and are open to feedback.
• Lack of relevant industry knowledge/ experience- While certain leeway is given to first time founders, as long as the team shows a promising plan of action. But its essential that without relevant industry experience, the deliverability of the product can be questioned.
• Lack of depth of KPIs developed- Key performance indicators (KPIs) are how a growth company’s traction is assessed. The idea is not to show “vanity metrics” to only impress the investor, but identify specific key KPIs that would essentially map progress in your industry. Lack of this, shows how little you know your market and/or research you have done.
• Team front
• Team dynamics is missing- Aspects such as -
• team dynamics,
• scope of understanding each other, and
• ease with which they communicate ideas amongst themselves, are found to be lacking, it can prove difficult to convince a VC firm of your team strength.
• “We are all in this together” - might seem a productive statement as long as each team member has a well defined role. VCs might take a keen interest in understanding how each team member is contributing to the growth of the company, and is not just present for face value.
• “Show me the commitment”- It has been noticed often , when pitching to a VC firm, a company wants to present a “well placed” team. But if you only spend a day or don't even update about this new venture on your LinkedIn profile, then no matter how impressive your background is, it shows lack of commitment.
• Evasiveness- When a team strings along a long story to a simple question such as “Why was the revenue last year low?”, it can come across as either they don't have clarity on how to answer the question or are avoiding to answer it. It's also key to point out here, that there should be consistency in how each team member responds to the same query.
• Taking too long to revert/ follow up- When the team takes a long time to revert to a mail/ call or worse, both, it shows that the hustle to grow is lacking. At the cost of sounding a tad bit vain, but a VC firm values how a company pursues them, showing how eager they are to get them onboard. ( everything being in moderation of course, overbuzz would kill the interest)
• Showing an unstructured pitch deck- The pitch deck is the first visual representation of your business plan, and that comes across as unstructured or incomplete, it can create a negative first impression. If the team cannot build a deck that tells a clear story in a fluent way, how can we trust the team to win consumers?
• Not sharing data room access even after multiple conversations- Openness and honesty is viewed as a strong virtue by VC firms. If the team is not willing to give access to the data room to a VC firm, it can be seen as a major red flag indicating the company might be hiding critical information.

Conclusion: 

Do keep in mind that none of these red flags is a hard NO. However, when wanting to put your best foot forward, it's essential to know which actions/ in-actions can make or break the deal for you .