Don’t Give Investors an Easy Reason to Pass

Being an early-stage investor requires an interesting duality of mindset. We need to be imaginative enough to suspend disbelief and go all-in with a founder on a crazy vision of the future while simultaneously using our well-tuned antennae to detect BS and other land mines that could derail that vision early. I previously wrote about how to best pitch that big vision and get investors to buy in. Now, I wanted to share some of the red flags that we regularly see at Range that either tell us that the founder doesn’t understand their own business or that there is some major shortcoming that they are trying to hide. 

1. No team slide or a team slide with wildly exaggerated bios. Two sides of the same coin here. Investors care and want to know who you are and what you’ve legitimately done. Hiding the truth (or embellishing) here raises a lot of questions.

2. Referring to a founder as a “visionary” in their byline or bio. True visionaries don’t need to tell everyone else what they are. A good rule of thumb is that the more successful someone actually is, the less they have to explicitly tell you how successful they are with superlatives.

3. Insanely large executive teams. We’ve seen team slides with upwards of 10 VPs in a 12 person company or 5 C-level people in a 5 person company. This shows that there are either way too many cooks in the kitchen for an early-stage company or that the founder isn’t capable of having a hard conversation.

4. Insanely large numbers of advisors. We also see startups that have a slide showing their 10+ “advisors”. As an investor, we are betting on the founding team, not a team of loosely affiliated advisors. A few key advisors are great, but a full of page of them shows that the founder is probably spending too much time with advisors and not enough time on the things that really matter at the seed-stage: building product and selling customers.

5. Lack of understanding of the competition or market. We often see founders talk about a nascent market with “big competitors A,B, and C”, all of which are basically failed or failing companies. If the biggest winner in your space is a loser, you need to find a new way to frame up your addressable market.

6. Writing off successful incumbents as “dumb”. Conversely, we’ve seen other instances where founders will dismiss giant, established competitors as “dumb”, which is their rationale for why they will win the market. The real answer for why a startup will beat multi-billion dollar competitor X is because they have a unique insight/approach/strategy, the world has changed, and they have the right team to execute quickly.

7. No acknowledgment of risks. Startups are chock full of risks. What investors care about is understanding what those risks are and how they can be overcome. When a founder pretends that there aren’t any risks at all, it shows either a lack of understanding or a lack of confidence and ability to confront the hard things that are a core part of company building.

8. Deceptive vanity metrics. The two classic examples here are 1) Showing cumulative numbers on a time series instead of true period over period growth and 2) Presenting blended CAC (customer acquisition cost), which obscures the incremental cost of paid growth. Displaying these sorts of metrics suggests that the founder has something to hide or doesn’t understand their own business.

9. The early-exit slide. This is the most disheartening as an investor. We’ll see a deck that looks great, with the founder sharing a big vision and ambition only to see a slide at the end of the deck that talks about how their future plans are to raise a Series A in 18 months and then sell to one of a named set of companies. While that might be the right outcome for the founder, every VC firm is structured to back founders that are in it for the long haul and committed to building a really big company. If a founder wants to sell quickly, they are wasting their time pitching to VCs and should look for alternative funding.

10. Self-pricing a round. Sometimes we see a company say “We’re raising $xM at a $yM valuation” without having any investors that have actually committed to the investment round. A company’s valuation is whatever the market is willing to pay, and when a founder tries to self-price it is both bad strategy (they may be scaring away all investors with a high price or underpricing themselves with too low of a number) and shows a lack of understanding of how to fundraise and negotiate.