18 Mistakes Founders Make When Pitching Pre-Seed to VCs
Raising pre-seed is really hard in any climate.
That's why founders should prepare / study and AVOID COSTLY MISTAKES when interacting with VCs.
In this blog we’ll look at mistakes that are MASSIVE RED FLAGS with VCs that founders can and should avoid.
1. Having an advisory firm or non-CEO reach out to a VC
Fundraising is the job of a CEO - period, full stop.
Never use an advisory firm to represent you in a fundraising when you are raising a pre-seed.
Never have CxO other than CEO reach out to VC.
2. Never say your customers are everyone
When Founder says their customers are everyone, VCs hear that founders doesn't truly understand the customers or the market.
Segmentation, wedging, correct go to market are so key at pre-seed, saying everyone doesn't make sense.
3. Never say you will sell to both Consumers and Enterprises
This is a worse flavor of saying your customers are everyone.
At the earliest stage you need to pick - Consumer OR Enterprise focus, it can't be both.
4. Never say you will sell to SMBs, Mid market, and Enterprise
Similar mistake to saying your customers are everyone.
Many companies start with SMBs then go up market but it happens over time, and you can't do it all at once.
Saying it implies you don't get it.
5. Never talk about your CAC at pre-seed
Founders put in their deck they ran experiments on Facebook or Instagram to acquire customers.
Understand that is $$$ YOU spent, the way you ran these experiments is so inconclusive.
Run the experiments but don't tell VCs!
6. Never talk about your CAC / LTV ratio
Similarly, at pre-seed stage it is ABSURD to talk about CAC or LTV or the ratio. You don't.
You just don't.
And that’s okay!
7. Never say you got ALL THESE CUSTOMERS without SPENDING ANYTHING ON MARKETING
OMG, every single deck has this.
If everyone says it and you do, you aren't standing out.
Again, this is absolutely meaningless at pre-seed.
You are expected to hustle!
8. Never make demo videos without sound
A few things are more sad than the silent demo videos.
Screen is moving. It is so lonely. So boring to watch.
No one has any clue what’s going on.
Don't shoot yourself in the foot. Add your voice, explain what’s going on!
9. Don't show unrealistic, unprovable projections.
Today we have $0 and 0 customers, but next year we will be making millions and in 5 years we will make $100M.
Really?
NO ONE BELIEVES THESE SLIDES AND NEITHER SHOULD YOU.
It is absurd, and only discredits you.
Avoid.
10. Don't say you have no competition, or that competitors are dumb
No competition? VCs hear -- NO MARKET.
Please don't belittle competitors, don't say they are dumb - especially large companies or startups who raised from top tier firms.
This is a big red flag!
11. When discussing competition never use MAGIC QUADRANTS or CHECK THE BOX CHARTS
Never use magic quadrants. It’s yesterdaywear. The world is a lot more complex.
And don't show a chart where no one but you has all the boxes checked.
Again, don't belittle your competition.
12. Don't say you have $1T or some other kind of absurd number TAM
Don't overstate your market and don't site some meaningless top down number you found on the web.
This shows you don't understand how to build a bottom up model and don't understand your model.
13. Never say you need to raise $ to hire a technical co-founder or lead engineer
This is a bad look, as VCs think you can’t attract and convince technical talent.
This is a basic litmus test. Figure out how to convince people to join you. Hustle to get customers first!
14. Never say you are raising to hire 3 engineers or to have 24 months of runway
You are raising to hit business milestones- customers and revenue.
Engineers are means to an end.
Runway is to support getting to milestones.
Never focus on burning $, focus on growth!
15. Never talk about your Exit or who is going to buy you
VCs don’t want to fund mercenary founders. They want to fund visionary.
Of course VCs want you to exit but focusing on exit at pre-seed is a bad sign.
They want to hear that you want to build, not that you want to sell!
16. Don’t say you have a term sheet unless you actually have one
VCs can smell term sheets.
If you are messaging that you have one too early in the process and they aren’t ready they will just pass.
If you say you have one but you don’t it’s a lie and they know.
17. Never lie to a VC
Never lie to a VC.
Lying is not great in general, but specifically to a prospective investor.
VCs know when you are lying about your experience, numbers, round, or anything else.
You lie, you are out!
18. Don’t be sloppy with numbers or demos or decks
VCs expect founders to know their numbers cold. If you don’t, it’s a massive red flag.
VCs notice sloppy decks and think you aren’t thoughtful - you lose a lot of points, since at pre-seed the bet is on you.
FAQs
1. How can founders effectively demonstrate market understanding and customer segmentation without falling into the trap of saying their customers are "everyone"?
To effectively demonstrate market understanding without claiming "everyone" as their customer, founders should conduct thorough market research to identify specific demographics, needs, and behaviors of their target audience. This includes utilizing data analysis, surveys, and industry reports to segment the market clearly and convincingly.
2. What are the best practices for founders without a technical co-founder or lead engineer when pitching to VCs?
For founders lacking a technical co-founder, focusing on the strength of the business model, market opportunity, and any initial traction or validation can help. Demonstrating a clear plan for how the product will be developed, possibly including partnerships or existing relationships with technical experts, can also reassure investors.
3. Are there any specific methodologies or tools that can help founders project more realistic financial projections and growth metrics?
To project realistic financial projections, founders can use tools like financial modeling software combined with industry benchmarks. It's important to base projections on solid assumptions grounded in market research and early traction, adjusting for conservative growth rates to maintain credibility.
Summary
We see Founders make a lot of mistakes and say a lot of wrong things when raising their pre-seed rounds.
These mistakes and red flags are entirely avoidable!
Founders: prepare, study, and avoid mistakes to help YOU win!!!
