Be Transparent with Your Crowdfund Investors

Crowdfund investors always try to mitigate risk, and the best way to help them do so is to be transparent and honest in all your conversations and documents. This includes offering realistic and conservative revenue projections.

Howard Stevenson has made more than 80 angel investments and headed the Entrepreneur Management Unit at Harvard Business School for more than 25 years. One of the red flags for him is when people running a company “say or do anything that is dishonest. If they do not have a strong moral code, your money is history.”

Here is a simple test to help you figure out if the startup you work for is in trouble. All you have to do is listen to your CEO talk to people for a week and determine if she uses the following lines:

  • “Let me tell you why the Sequoia memo really doesn’t apply to us.”

  • “Our team is totally engaged and believes in the company.”

  • “Our market is so large that a 20 percent reduction won’t matter to us.”

  • “We aren’t changing our long-term strategy because this is a short-term problem.”

  • “It’s still too early to tell if we’ll be affected.”

  • “The sales pipeline that we’ve already booked is still strong.”

  • “The start of sales results is just around the corner.”

  • “We can accelerate revenue with a few tweaks to our product.”

  • “We can reduce expenses without affecting headcount.”

  • “Our investors are totally engaged and believe in the company.”

  • “We think we can raise another round right after the holidays.”

  • “We heard that our competitors are in trouble, but we’ve been more conservative with expenses.”

  • “We have 12 months of cash even with our most conservative sales forecast.”

  • “In these times, (Some Big Company) needs what we offer to increase sales.”

  • “In these times, (Some Big Company) needs what we offer to reduce costs.”

  • “We’ve built an extremely viral product so we can reduce our sales and marketing expenses.”

By extension, if potential investors start reading or hearing these lines of thinking from you, they may want to run in the other direction.

State all assumptions and include source information in your go-to-market plan. Saying that you’re going to be a billion-dollar company and do an IPO by capturing 2 percent of China’s population as customers is a telltale sign of an amateur. Do your homework. Find several outsiders, including an investor, to review your plan for obvious red flags before you begin your campaign. And listen closely to what they share with you.

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