Are Tall Tales Detracting Investors?

Why business start-ups lie and why you shouldn’t

127
Investor analyzing stock market report and financial dashboard with business intelligence (BI), with key performance indicators (KPI).justice and law concept.businessman or lawyer or accountant working.

Cool Photos from Depositphotos

By Kevin Coker, JD, MS, MPH, co-founder and CEO of Proxima Clinical Research

Pitching investors is stressful for every entrepreneur. How do you balance the story you want them to know with the reality you’re living and still be exciting enough to attract investors? 

At pitch fests, it is common knowledge among investors that business start-ups tell tall tales. The intent is usually not to mislead, per se, but rather to build excitement for their company or product, and in doing so, they exaggerate… which in truth, is a lie.

At some point for investors, startup pitches all start to sound the same; like everyone is trying to emulate the next influential person of the year—a charismatic leader with out-of-the-box ideas and foresight into the future. Sadly, many simply don’t understand where their value lies, so they feel the need to create illusions about their business, their milestones, and their progress as a means of telling their story more favorably. This is the worst thing you could do.

As an entrepreneur, you don’t want to be part of a pitch meeting where investors leave thinking, “I’m pretty sure everyone just lied to me. So why would I want to do business with them? Which one lied the least? Which is going to be the best investment for me, despite the lies? Which do I trust most?” 

The problem with exaggerations, and flat out lies for that matter, is that 1) people can tell when they are being lied to, 2) it ruins your credibility, and 3) it assumes the listener or receiver of the lie is gullible enough to believe it. 

No one likes to be lied to. So, why do business start-ups continue to stretch the truth? Four factors: 

1Milestones.

Hitting milestones is crucial; but they’re not the only thing investors consider. If you haven’t met the milestones, address the roadblocks honestly. Forthright communication between you and your would-be investors shows your character along with your product. Overselling gives a negative impression, and sadly, this is becoming the brand of small companies in pitch fests. It makes it difficult for investors to trust the companies, so they feel safe in investing. There is absolutely nothing wrong with being honest with where you are today. Investors will buy into your vision and appreciate your authenticity. Credibility is a valuable currency. Tell the story. Share your excitement. Share the background or history of how you got here, where the idea(s) came from, and the research you’ve done on the market. Do not say you are two months from clinical trials when you are not. Do not say, “The FDA loves our product,” because investors will know you are lying. The FDA would never say that, and neither should you. 

2Hubris

The self-assured hubris among emerging companies pitching investors makes the investors job more challenging. Humility, transparency, and authenticity are more your friends than anxious business owners care to believe. Instead of excessive pride or over blown self-confidence, appeal to the emotions of the investors. What would you like to tell them? What do you want them to know? To understand? To think? To feel? What problem is your product solving? Why is it needed? What does it do differently? Better? Who does it serve? Why do they care? Why will they buy it? What makes them want it? How will they pay for it? Remember, people buy more for a want than a need, so think in terms of desire. 

3Storytelling

The person who can tell the best story in the most charismatic way wins. They get the money. It’s hard for even the most well-trained investor not to fall into this trap. The most underrated metric is being genuine. Don’t let your story get in the way of your truth. Your investors are going to find out the truth sooner or later – then what will your relationship look like? Protect it from the beginning by being a great storyteller of your idea, your product, your company, and not that of a tall taleteller. 

Many great salespeople can get away with puffing up and overselling in a one-on-one situation or at a small table, but when they’re presenting in a larger group, it’s a different dynamic. There is a different frame of mind among the investors and a larger bias toward disbelief for “too good to be true” products and companies. Optimism among investors is best one-on-one. If you happen to be part of a larger pitch fest, it’s even more important to be open and forthright. Never lie. No one ever forgets the lie. I have a list of people I know off the top of my head who outright lied to me. They were very dishonest when they pitched me about their product. I may be friendly with them, but I will never do business with them because they were dishonest with me, and I find that distrustful. 

4The pitch

During pitch events, it’s common to teach everyone to pitch same way: problem, solution, credibility. Take this advice into consideration but remember to be authentically you. Not everyone is comfortable with the system. Investors can tell when the person pitching is not comfortable with the language or style. Plus, the same style repeated over again can become monotonous and boring. Put some personality into it. Be you. Share the greatness of your product. Your script should be tailored to your presentation style. If it doesn’t feel natural, rethink it. 

Conclusion:

In your pitch, the truth should be the main attraction. It’s the idea, the concept, the dream you are pitching— not your imagination of wants and wishes, and not yourself. Of course, your team matters. Investors want to make investments with people they can trust. Be that company and you’ll win more investments, have better relationships, and get even more money down the road.