Business

In my business law practice I help clients raise capital in private equity offerings and debt financing opportunities.  Part of the process of raising capital is the interview where the business owner presents the business plan and investment opportunity to potential funders.

Back in my MBA days I sat through a million academic business plan presentations by students where pro forma graphs looked like hockey sticks and strategies were held out as the greatest business models since Microsoft.  Most equity raises I have been involved with have been in real estate and software licensing industries.  Especially with the later, I am surprised by how many business owners offer these MBA promises in their funding interviews.  I am not sure why they don't realize that funders see through these exaggerations.  Statements like these kill the deal.

In The Art of the Start, Guy Kawasaki provides his top 10 list of lies told by business owners to potential investors (lies which professional investors hear over and over).

Lie #1: "Our projection is conservative."

Lie #2: "Gartner (Forrester, Jupiter, or Yankee Group) says our market will be $50 billion in five years."

Lie #3: "Boeing is signing our contract next week."

Lie #4: "Key employees will join us as soon as we get funded."

Lie #5: "Several investors are already in due diligence."

Lie #6: "Procter&Gamble is too old, big, dumb and slow to be a threat."

Lie #7: "Patents make our business defensible."

Lie #8: "All we have to do is get 1 percent of the market."

Lie #9: "We have first-mover advantage."

Lie #10: "We have a world-class, proven team."

The key here is to be honest (something I teach my 6 year old!).  People don't like being lied to - and exaggerations feel like lies.  You are asking these investors to partner with you in your business.  Treat them as you would your partners. 

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Also see:

Private Equity IV - Angel Investors Get Picky
Private Equity III
Private Equity II
Private Equity I