Ask any millionaire for the secret to their success, and they will probably tell you that entrepreneurship helped them reach their financial goals.
However, starting a business takes money. While it’s possible to launch a successful enterprise on a shoestring, many businesses require an influx of capital in order to get off the ground, and that money often comes from venture capitalists (or VCs). Of course, getting money from a VC isn’t simply a matter of showing up and asking for it. Even if you have what you think is a “can’t lose” idea and a killer business plan, you still need to woo the VC and convince him or her to hand over a check.
If you’re lucky enough to get a VC’s attention and score a meeting, you want to make a great impression. Owning a business — or even part of a business — is one of the most effective ways to increase cash flow and build wealth, so your potential wealth and financial security could depend on this meeting. Too many entrepreneurs make a fatal mistake at this stage, though — and that mistake is probably not what you think.
Confident or Cocky?
Have you ever watched the television program “Shark Tank?” If you do, you know that the entrepreneurs who land the sharks tend to be the ones who not only have a great business idea, but also have a solid plan, an understanding of their industry, and confidence. The entrepreneurs that end up looking foolish? Well, usually those are the entrepreneurs who show up unprepared — or worse, unprepared, unknowledgeable, and overconfident.
Confidence is a great thing when you’re meeting with a VC — and being an entrepreneur in general. If you are unsure of yourself or your idea, you’re never going to be able to sell anyone on it, investor, or customer. However, overconfidence is just as dangerous. Some of the ways that overconfidence can manifest itself in a VC meeting include:
- Assertions that you have all of the skills necessary to make the business a success. Everyone has gaps in their knowledge or experience; you need to identify them and develop a plan for filling them.
- Mistaking passion and insight for bravado and swagger. You must know your business and your industry inside and out, and demonstrate that it’s your driving force in life. However, that passion can quickly turn into arrogance and bravado when you begin making exaggerated claims or refusing to take advice or respond to feedback.
- Being unprepared. As any entrepreneur on “Shark Tank” will tell you, not understanding investment and business opportunity — or having answers as they relate to your company — is almost always the kiss of death. Even if you think you have a handle on your business and your pitch, anticipate possible questions, and brush up on necessary terminology.
- Unwillingness to negotiate. While you know what you want from the VC, you must be willing to negotiate and consider other offers. Threatening to walk away or refusing to budge on minor points of the contract out of a misplaced confidence in your negotiation skills or because you believe you have another investor on the line is most likely not going to be a successful strategy.
- Rudeness to support staff. It may sound unbelievable, but some entrepreneurs do not treat VC support staff with the respect that they deserve, believing that they are somehow “better” than others because they are business owners. What they fail to realize is that many VCs seek input from others when making investment decisions, meaning that the receptionist that you were rude to could play a role in whether you get funding or not.
Avoiding the Trap
Experts say that overconfidence usually stems from an entrepreneur’s ego — and that if you are going to score an investor successfully, you need to check your ego at the door. Going into a VC meeting with the mindset that you are searching for a partner, not just a checkbook, will get you much further than if you go in with the mindset that you’re the brains of the operation and just need some cash. VC’s will invest in businesses that they believe will make them money, but for most, that doesn’t translate into a willingness to work with someone who is difficult or unpleasant.
The bottom line? When attempting to woo a VC, be confident, but don’t be a jerk. Look for expertise as well as money, and you’ll have a better chance of scoring the deal that makes your fortune.