By Cynthia Kocialski (Author, Start Up from the Ground Up)
When speaking to someone about the new product or the business proposition, there is often the moment when you know that you have lost your listener.

One misspoken comment and everyone wants to leave as soon as possible. They’ve made their decision and they want you to stop wasting their time. It’s their gut reaction.

What are some of these turn–offs?
Investor Turn-Off #1: Investors’ Money Getting No Respect

Having an apparent disregard for the investors’ money will often sink a deal or make investors wary of what is to come of the start-up in the future. Two co-founders presented to angel investors and when one investor asked what if the start-up encountered problems, they flippantly replied they’d just go back to their old jobs. Investors want to know you are going to give it your best.

Yet, another start-up CEO after raising $2M in seed money from private investors stated that if the start-up didn’t work out, well … the investors could each afford to lose their $100k or more, they’d still continue to have pretty nice lives. When it came time for another funding round, the current investors would not invest further unless the CEO stepped down.

Investor Turn-Off #2: Zooming In On the Exit

Focusing on the exit strategy too early leaves investors wondering about what the entrepreneur’s principal concerns are for the project. Founders need to be passionate about the product idea and the business, and stating that you’d be happy with a specific amount of millions in a few years leaves the impression you just want out. Entrepreneurs should be most concerned with building the company.

Investor Turn-Off #3: Big Market Numbers

Phrasing the potential market penetration in terms of “Big China” will make investors cautious. This occurs when the entrepreneur makes some sweeping statement such as everyone in the world could use our product, and further states if we only capture some small percentage of the market then look at how profitable the start-up will be. The only company I know that takes this approach is Coca-Cola, which measures market penetration based upon how many fluid ounces of liquid is required for human beings to survive and determines how much Coke consumers drink in terms of this basic human requirement.

It’s great if the start-up can capture a small percentage of a very large market, but how do you do you just break into the market from ground zero. That’s what investors want to know — how are you going to get those first customers and how are you going to grow to a small following.

Investor Turn-Off #4: Bottoms-Up Vs. Top-Down Market Size Numbers

A top-down approach is mentioning the numbers provided in research reports by the analysts. These tend to be broad numbers and don’t necessarily indicate the addressable market. If the investors think the market numbers are inflated too much, they will stop listening. Recently, a CEO was pitching software to alleviate the possibility of being audited by the IRS with the trigger being questionable claimed mileage. The CEO based the business model on the number of businesses using mileage. The angel investors came back with he remembered reading an article with the number of people who are audited every year and the percentage was quite low, so the number of audits triggered by this one criterion had to very small and therefore he didn’t feel the market was large enough to warrant an investment.

Investor Turn-Off #5: No Competition

This is always competition. Somehow your customers are fulfilling their needs today. Competition can be as simple as continuing to do things as they are doing them now. Competition can come from in-house development too. Never say there is no competition. What investors want is a proven market, one that is young and growing –- mature and saturated markets need not apply because they often require too much capital to overcome the incumbents, not because they are not viable.

Investor Turn-Off #6: No Customer Input

Products are developed for customer usage. Not involving or interacting with the customer early enough is a sign of trouble in the future. Even getting customers to act as references for your proposal is good. It can be as simple as having a meeting to discuss your product and asking them if they would buy the product once it is available.

Start-ups can set up customer advisory programs where the customers provide feedback in a formalized manner. Sometimes stealth mode is carried too far.

Investor Turn-Off #7: Disruptive or Break-Through Technology

If the founders emphasize that their start-up has break-through or disruptive technology, then be prepared to immediately state why. Not many investors believe this. Most will tell you it’s a myth. Things referred to as disruptive or break-through are viewed this way as a matter of historical perspective –- the invention of the wheel, the first airplane, the personal computer, and the Internet. PCs were first seen as hobbyist toys, but they weren’t considered disruptive in their infancy. It’s only in retrospect that they were viewed as such.

The same can be said of an emerging market or technology, predicting one is difficult but hindsight is much better. When I was in graduate school, robotics was predicted to be the next big market segment. I even did my thesis on computer imaging for robotic systems. Robotics never did become one of the hot or trendy technologies.

Investor Turn-Off #8: Being Conservative

Entrepreneurs seem to believe that investors want to hear that their numbers and estimates are conservative. Investors know that backing a start-up is a very risky business, and conservative isn’t what they are interested in, nor is it what they expect. There are plenty of conservative, less-risky investment vehicles available to investors. Just the other day, a CEO gave me a pitch and the word “conservative” was used so many times that I started to count its usage.

Investor Turn-Off #9: The Devil in the Details

When entering into a market, not understanding the nuances of the business will cause failure. It’s the details and subtleties of an industry and deep knowledge of the customers that make a product successful. Investors and customers want to know the start-up has experience in the market.

Investor Turn-Off #10: Appearing Non-Coachable

Every time an investor or a customer asks a question, they are imparting valuable information. They are never idle questions. Not listening or addressing their concerns is a start-up killer. Becoming defensive when they ask questions and probe deeper is a negative as well. These are all signs that you won’t be able to build an effective team and recognize the need to change the original plan and idea in a responsive manner. Don’t let the investors leave believing you are pigheaded and stubborn.

Investor Turn-Off #11: Being Too Eager to Abdicate the Throne

An entrepreneur looking to abdicate the throne is not a good sign either. This happens when the founder is the CEO, but doesn’t want the CEO’s job and wants to find a replacement. There’s a difference between succession planning and abdication. I find this happens when the CEO discovers that fundraising is the bulk of a start-up CEO’s job and just wants to be involved with the technology or the business. This also happens when the CEO has taken funding from a gaggle of private investors and he doesn’t want to deal with the investors anymore. Sometimes the CEO wants to go into self-imposed exile by stepping down into an advisory role or a board position, and it’s just one more step to leaving the project all together.

Investor Turn-Off #12: Proposing Yesterday’s Trend

The entrepreneur has a different perspective than the investor. The investor has the ability to select a company from among many proposals in different markets. The entrepreneur is building a company based upon his expertise and background. The entrepreneur can’t select from among the many possible markets. An expert in Internet security software shouldn’t start a pharmaceutical company. The problem for entrepreneurs is what’s a hot topic in investors’ minds is fundable, and what’s not, simply won’t attract money. Like it or not, start-up trends last about seven years, after which time, little money will flow into the segment.

Editor’s note: Got a question for our guest blogger? Leave a message in the comments below.
About the guest blogger: Cynthia Kocialski is the founder of three tech start-ups companies. In the past 15 years, she has been involved in dozens of start-ups and has served on advisory boards. Cynthia has held technical, marketing and management positions at IBM and Matrox Electronics. She holds engineering and math degrees from University of Rochester and University of Virginia. Cynthia writes the Start-up Entrepreneurs’ Blog and is the author of the book Startup From The Ground Up: Practical Insights for Entrepreneurs, How to Go from an Idea to New Business.