There are too many examples of red flags to list them all here. Some common ones which I look for include part-time members of a founding team, the absence of conviction for the idea that a team is pitching, and founders who talk about their exit strategy at the first meeting. A somewhat less common but equally troublesome red flag is when a team uses status symbols to pitch their startup. Since I’ve encountered this three times within the last week, it deserves to be the topic of this post.
The first example was a founder who began his pitch by saying that he had already spoken to prominent investors A, B, and C at top tier VC firms X, Y, and Z, and that they were all very supportive. There are many things wrong with this pitch. First, if X, Y, and Z were all very supportive, how come you’re still looking for funding? Second, if you really want to work with X, Y, and Z, why are you speaking with me? Third, VC’s talk to each other. When I reach out to A, B, and C and discover that you’ve significantly embellished your story, you not only lose the opportunity to receive funding from me but may also lose the trust of A, B, and C.
The second case involved an email with a meeting request. Even before describing what the startup does, the email emphasized that the founding team consisted of graduates of prominent schools A, B, and C. That may be a good strategy to receive a job interview at an investment bank or consulting firm, but it won’t work as well for a startup pitch. I’m interested in hearing about what you’re doing, how it’s different, and why you’re the best people to do this. There are thousands of students graduating from top schools A, B, and C each year, so knowing that you’re one of them doesn’t help answer any of these questions. In addition, you likely won’t be competing against people from your university but thousands of others who may have gone to less prestigious colleges, or not gone to college at all. Chances are that these people are going to want it a lot more than you do.
The final example was of a startup founder who pointed to their most recent press coverage to justify the potential of their business. Once again, there are many things wrong with this approach so I’ll name just a few. First, getting press coverage for a tech startup isn’t that difficult these days. This tells me that you’re as good as pretty much every other startup out there. Second, if a particular journalist has the ability to pick winning startups, please let me know. I want to hire them. Third, if the same journalist knows the potential of your business better than you do, you should also consider hiring them.
As these three examples illustrate, startups and status symbols don’t go together. By definition, a startup is a young company with no status. A startup is not part of the establishment. For it to succeed, it needs to work harder and smarter than its competitors, which often include the establishment. So what I want to hear from you is not status symbols but creative ideas, metrics if you have them, and the ambition to execute. If you’re someone who cares about status, do yourself and VC’s a favor and join a Fortune 500 company, not a startup.