VCs came clean on what annoys them, turns them off and makes a company a bad match for them at a recent New Jersey Entrepreneurial Network (NJEN) meeting. The early April 2012 gathering’s topic was “How Not to Attract Venture Capital.”

The panel was moderated by Donna Usiskin, principal and healthcare IT investment team member at Edison Ventures (Lawrenceville), and included Nate Lentz of Osage Partners, which makes Series A investments in the mid-Atlantic area; Tom Vander Schaaff of Edison Ventures, which comes in at a later stage, when companies have at least $5 million in revenue; and Brett Topche of MentorTech Ventures, a Philadelphia seed-stage VC that deals exclusively with companies from the University of Pennsylvania ecosystem.

The VCs, who evaluate thousands of business plans each year, had plenty to say. Usiskin first asked the panelists to list their pet peeves at the introduction stage:

• Jokingly, Topche said, “Don’t catch me in the men’s room.” He said the best way to meet is a “warm introduction” through a credible individual he knows well and who knows the entrepreneur well.
• Don’t email everyone in the firm, Vander Schaaff said. It gives VCs headaches and shows you haven’t done your homework. And don’t cc VCs at other firms in the email.
• Don’t give a VC a one-sentence or one-page introductory pitch for your company and then say, “I’ll be happy to tell you more under a non-disclosure agreement (NDA).” NDAs are important tools, but VCs very rarely sign them,” Lentz said. They see thousands of deals every year, and the logistics of handling and managing NDAs for each is too great. “Realistically, if you can’t tell us what you do without giving away the farm, something is wrong,” he noted.
• Usiskin added that her pet peeve is omitted basic information like physical addresses, email addresses, website information and phone numbers on each page of business plans or documents. All that should be in the footer, she said. 
• Usiskin concluded, missing basic information like geography, industry and a short elevator pitch inhibits her ability to refer the entrepreneur to another investor. “When I see a plan I know I’ll have to pass on because I don’t make this kind of investment, I’m happy to refer it to an appropriate investor, but I need enough information to figure out whom I should pass it to.”

Speaking about the stage at which a company presents its first pitch to a VC:

• Don’t send the whole business plan for your first contact. Just 10 to 20 PowerPoint slides will do. “I’m not going to read the whole business plan, and if I read some of it, I may read the wrong five pages,” Lentz said.
• Don’t use too much tech or industry jargon in your pitch. Write it the way you’d explain your company to your grandma, Topche said. And if you can’t explain it to your grandma, you aren’t explaining it well enough.
• Share financials early on; don’t keep the VC in the dark. It’s hard to get excited about a company when entrepreneurs aren’t open about their financials, Vander Schaaff said.
• Don’t use terminology like “easy to use” or “more efficient,” because it makes the VC ask “Where is the differentiator?” Usiskin said.
• Also, don’t say you are a “price leader,” Vander Schaaff said. It makes him think you don’t add value to your industry, he added. “If you are really small and a price leader, you may be getting some market share, but it will be hard to sustain that as an advantage.”
• Don’t use overly optimistic charts, Lentz added. Charts that show an L-curve amuse him but don’t tell him anything. In reality, when you first get money, you may have some downside deviation as you hire more sales and marketing people before you start seeing deals.

On competition:

• A big don’t, all the panelists agreed, is saying you don’t have competition. It’s either totally unrealistic or may mean you are addressing a tiny market, in which case VCs aren’t interested.
• When entrepreneurs say they don’t have competition, it’s because they aren’t defining the market correctly, Topche said. “In a lot of cases, doing nothing and living with the problem is your competition. That’s free to your customer.”
• Realize that, for every software idea on the East Coast, there is probably a similar one in Silicon Valley and another in Israel, Topche added. “If you say you have no competition, you either don’t understand your market or are lying to me, which ends the conversation.”

Speaking about the total addressable market:

• Don’t discuss the overall market for software, for example, just the market segment you have a chance of winning, all the VCs agreed.
• Don’t discuss the market you are addressing without first detailing what is going on in that market, Lentz said. Is it growing really quickly? Is it a dynamic sector? For example, virtualization is one segment where enterprise dollars are flowing quickly, so you could get a big enough market share. “You don’t even have to be the best to succeed. There could be a number of players who can all share a rapidly growing market segment,” he added.
• Remember to think about not only the universe of buyers but how you get to them, and make sure your market strategy is consistent with the market out there, Vander Schaaff concluded.