The Startup Red Flags

You’re busting your butt to raise venture capital. But what if you’re raising red flags with investors without even knowing it?

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I see several thousand startup pitches every year.

Sometimes the founder has a great idea and an awesome story. But one little detail gets my spidey sense tingling.

Here are a few things that raise an instant red flag:

1) You won’t share information. When a founder won’t give me a straight answer to a question, that’s a huge red flag.

In my experience, the most successful founders are very forthcoming with information. Whether it’s revenue numbers, cash in the bank, or challenges the business is facing, they give it to you straight.

When a founder won’t give me information, I suspect they’re hiding something. If I ask for revenue numbers and don’t get them, I assume there is no revenue.

When you don’t share info, you leave investors to assume the worst. Don’t let that happen to you!

And don’t worry about competitors.

I’ve met founders of billion dollar companies that shared detailed financials. It hasn’t hurt them yet!

2) You’re scared of someone stealing your idea.

You might have an amazing idea. But building a startup requires a lot more execution than inspiration.

So don’t worry about people stealing your idea. Instead, share it with as many people as possible and get their input!

When a founder is secretive, it tells me they don’t know how startups are built. Just like #1, it also leaves me to assume the worst.

One form of this is an obsession with patents. Don’t bother mentioning these to investors unless you’re a deep tech startup.

3) You’re not launched.

Some founders have incredible stories about the amazing things they’re going to do. But when you talk to them a few months later, it’s still just stories.

Launch your product as soon as possible. This lets you start learning from customers and refining your product.

It also shows investors you’re serious about what you’re doing. Be a walker, not a talker!

4) You’re an LLC. Founders try hard to project competence when they’re raising money.

Unfortunately, nothing shatters that image quite as fast as finding out you’re not properly incorporated. To raise venture capital, you need to be a Delaware C Corp.

Avoiding some of the biggest pitfalls in fundraising is easy! Just be prepared and be willing to share everything with investors.

Investors want to believe! And they want to give you money.

But they need information in order to give you that “yes.”

What red flags do you see in startups? Leave a comment at the bottom and let me know!

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Photo: “red flag” by freddie boy is licensed under CC BY-SA 2.0.


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