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What not to tell Angel investors and VCs?

Angel Investors and VCs ask all kinds of questions. As a founder or a CEO what makes sense not to tell this types of investors and for what reason?

Is there something they are not entitled to know and yet ask anyway?

Investors don't sign NDAs nowadays, so how to make sure that when they ask for you to do the presentation, they are not testing you or collecting competitive intelligence to see how much threat you are to their portfolio companies?

What you shouldn't tell potential investor vs existing investor or not tell any investor at any stage?

Very appreciated.

Added: Obviously protecting publicly visible information is pointless, but what about if investors asks for your Cost of Customer Acquisitions (CAC) and you reply with time it takes to ROI instead, or they ask which channels produce lower CAC and faster ROI or Before you get the money to implement your very innovative marketing or go to market strategy revealing what it is.

16 Replies

Rob Francis
1
0
Rob Francis Entrepreneur
Senior Manager at LivingSocial
This is by no means a full answer, but I wouldn't worry about the competitive intelligence part. First, Angels/VC most likely value their time too much to setup a meeting and sit thru the whole thing just to see if you are a threat. If they do, they probably aren't good at what they do and you'll want to avoid them anyway.

Second, nobody is going to approach a problem, and build a company the same way you would. Even if it's the same industry with the same potential customers, the game plan will be different, hustle will be different, etc. So have confidence that you'll solve it better than anyone else, and the Angel/VC will recognize that and invest...or not.
Pranay Choudhry
4
1
Pranay Choudhry Entrepreneur
Founder & Marketing Lead at Actozen
People outside the business are not entitled to know alot of things, and the same logic applies to VC's or investors. It's a definite grey area as they want to be a part of your business so they need adequate information. In my opinion, metrics such as traction, business performance, and the vision for your business are fair play. The details of how you plan to achieve your vision should be guarded and its a gut call who you want to share it with. As most people say, the two best things in a startup is the execution and the team that is executing it, so focus on that. Most VC's and Angels are very transparent with their portfolio so you can have a sense of whether they are just fishing for information or are genuinely interested in your company. Its a very open-ended question so I am sure there will be other opinions coming in.
Chris Kitze
8
0
Chris Kitze Entrepreneur
CEO at Safe Cash Payment Technologies, Inc.
If you can't take your business plan, hand it to your competitor and still have a business, you need to take a hard look at what you are doing.

Nearly everything is out in the open these days; "there are no secrets in the naked city". However, potential deals that haven't closed and partners you are in discussions with probably shouldn't be spoken about in great detail. You can be vague about these; "we're in discussions with a major retail outlet with millions of consumers", that sort of thing. They'll get the idea how you are thinking, the direction you are going, and you can share that information once you receive a term sheet from the investor. They might be able to offer help to make an introduction, too.

Stas Khirman
5
0
Stas Khirman Entrepreneur • Advisor
SVOD Conference CoChair
Being multiple times on both sides of the table, I recommend to follow those three rules:
1.) Tell truth, only TRUTH , but never ALL the truth..
2.) Tell WHAT you are doing ( or going to do) , but not HOW you are going to do
3.) If your business know-how can be replicated after 1h of talks, its maximum valuation is about cost of lunch in fancy restaurant...

A few clarification on the rules:
#1 - "vague answers" are not helpful - trust is a major asset of entrepreneur/investors relationships.. It much better to draw a line with "i can't name our potential customer until ..." instead of wiggling with "you probably can guess name of this big retailer" or similar... Potential investor is entitled to truthful information, but not to all information.
#2 - let's use your CAC question as an example - you certainly have to provide potential investors with truthful information about your CAC - it is part of WHAT for your business model and planning. But you can reserve technical details of HOW you achieve such uniquely low acquisition cost until late stage due diligence.
Stas Khirman
0
0
Stas Khirman Entrepreneur • Advisor
SVOD Conference CoChair
oh, and certainly , you can keep more "don't tell" details during initial meetings with clear stated promises to discuss it in late stages of due diligence...
The more time investors spend with you, the less probability that they are on the "fishing expedition"...
Marc-André de Launière
0
0
Conseiller en gestion / Travailleur autonome
I agree with Stas. You need to have a communication strategy for your pitch: founder vision Pitch, fundrising pitch, VC /elevator pitch and so on. A pith is highly strategic and must punch ....so a punch pitch!
Max Avroutski
1
0
Max Avroutski Entrepreneur
eCommerce, Software Developer, Usability, Marketing & Product Creation consulting services.
Stas,

How one separates What from How?
So, you suggesting on the question: How you bringing in customers? "What" answer is : I am doing Marketing. And on "How" you doing it : You suggest to say "It's a trade secret."

BTW, about know-how replicated after 1 hour worth the cost of lunch, have you heard of Patents ? Patents usually short enough to fully read in 1 hour and have requirement that someone who reads it can 100% replicate it. So You suggesting that anything that is not patentable is not worth keeping from competitors and investors?
Can I have 3 examples of something that can't be replicated after learning about it for 1 hour?

Lets say some VC wants to invest, you do the pitch, because who would turn down chance of getting investment from one of the 100 largest VCs, and they do investments in ventures in your sector, but they start to ask how you planing on doing some of the things that you say that you will do.

Should you give it up? and risk that they don't give you $10M, but protect their $1B investment in another company that secretly was thinking of doing what you planing on doing, but had no idea of how to accomplish it, before you told that VC
Or even worse, they give you $5, and then make it impossible to accomplish anything, and their $1B investment company gets first mover advantage.
Stas Khirman
1
0
Stas Khirman Entrepreneur • Advisor
SVOD Conference CoChair
Max,

It seems you will be surprised to learn that patents are not sufficient to replicate BUSINESS know-how. Usually, they even not sufficient to replicate TECHNOLOGICAL know-how... And, if you read well-written patents claims, you'll realise that they tend to cover WHAT you are doing, dedicating a very little time to describe HOW ( to give wider space for future litigation opportunities, IMHO)

But even if somehow you can understand all technological and business ideas, it is way not enough for success.

For some reason, too many people are assuming that startup success based on some small piece of information, some patent or brilliant idea. While in practice (proven time after time) at least 9/10 of the success depends on quality of execution.

You asked for examples - virtually every successful company had precessors with similar, or sometimes even superior, ideas and technologies. Let's look on Facebook - originally it was based on well-known ideas easily describable in 1h lunch. Plus had a few well-established direct competitors.

Did Facebook have deep technological know-how behind it - no, at least at the beginning... Did it become successful where others failed due to some "1h know-how" ideas? Apparently not...

Yes, Facebook had some good ideas ( but every waiter on University has even better ideas..).

It success came not from ideas but brilliant EXECUTION. And this you can't replicate in 1h lunch...

Max Avroutski
0
0
Max Avroutski Entrepreneur
eCommerce, Software Developer, Usability, Marketing & Product Creation consulting services.
I don't want to talk about FB or Patents.

I want to know what OP was asking. Which questions of investors is ok to deflect or not answer citing internal information or trade secret. ?
Neil Gordon
0
0
Neil Gordon Advisor
Board Member, Corporate Finance Advisor and Strategy Consultant
You're not obligated to tell potential investors anything. At the same time, the potential investors aren't obligated to give you their money. Just saying.


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