Page 221 - Finance for Non-Financial Managers

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Finance for Non-Financial Managers
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Avoid the Top 10 Lies
Guy Kawasaki, CEO of Garage Technology Ventures, warns
against the following statements that entrepreneurs most
commonly use with venture capitalists.
1. Our projections are conservative. Venture capitalists know
that entrepreneurs are optimistic.They won’t take your projec-
tions at face value.
2. ABC [a consulting firm] predicts our market will swell to
$X by 200X. Refrain from giving numbers. Anybody can predict
almost anything.
3. XYZ [a huge company] is about to sign a sales contract
with us. Entrepreneurs may interpret even a polite rejection as a
sign of true interest. VCs know better.
4. Key employees will join us as soon as we get funded. VCs
have telephones and can call those key prospective employees.
5. We have first-mover advantage. Two problems. One, first-
mover advantage doesn’t matter, not as much as “first to scale.”
Two, it’s easy for VCs to check out claims to an advantage.
6. Several VCs are already interested. VCs can check out this
claim; if it’s untrue, you lose a lot of credibility.
7. _____ [a big industry leader] is too slow to be a threat.VCs
will read in such a statement a lack of awareness of the market.
8. We’re glad the bubble has burst. OK, so it’s good that
investors and entrepreneurs are more rational and realistic, but
what sane entrepreneur would be pleased that investment money
is harder to obtain?
9. Our patents make our business defensible. Be realistic: out-
side of medical devices and biotechnology, patents mean very lit-
tle. If an idea is worth money, somebody will copy it.
10. All we have to do is get 1% of the market. Leave the worst-
case scenario to the VCs. Aim at a figure you consider realistic—
and show how you intend to hit it.
Source: www.garage.com/guy/speeches/Lies_of_Entrepreneurs.pdf
fifth makes the whole thing worthwhile. If you think about it,
would you make your living doing something that you expected
to fail at 80% of the time? Perhaps that’s why these investors
ask for and typically get the valuation leverage they ask for,
even when it seems so unfair to the hard-working founder.