This document outlines 10 common "red flags" startup founders should avoid when pitching investors or discussing their company. Some red flags include wearing too many hats instead of assembling a diverse team, asking for an NDA too early in discussions, claiming to have "sweat equity" without real cash invested, looking for coders who will work solely for equity, having unrealistic revenue projections, and overstating the size of the addressable market. The document provides advice on how to avoid each red flag, such as being careful not to divulge too much information early on, remembering that execution is important, and ensuring revenue projections are grounded.

1. Red Flags: 10
things you
should never
say, do, or
write about
your startup

2. Wiley Larsen
About me:
, Venture Manager, ASU SkySong
President, Owner, and CEO of
Dilla Marketing Group, COO, CFO
Director of Sales and Marketing,
Principal Designer, Creative Director,
Webmaster, Head Software Architect,
Chairman of the Board,
Receptionist
Red Flag #1: Wearing too many hats

3. DO: Assemble a diverse and
complimentary team

4. Red Flag #22
“Hi my name is ___________.
If you can just sign this
NDA, we can get started.”

5. Don’t: Ask for an NDA too early
Do:
• Be careful not to divulge too much
information
• Ask for an NDA when the investor
begins to show genuine interest
• Remember it’s as much about your
ability to execute as it is about the
solution, so don’t oversell the
technology and undersell yourself.

6. Red Flag #33
“I have over $100,000 in
Sweat Equity.”

7. Sweat ≠ Cash
The only equity
anyone cares about
is REAL cash.

8. Red Flag #44
“I’m still looking
for a CTO, so if
you know a
good coder who
will work for
equity…”

9. Reality: Good ideas are a dime a
dozen, and good coders don’t work
for equity.
Make some
new friends

10. Red Flag #55
“We need $250K
for business
development “

11. Reality:
• Hiring a sales guy is not a marketing plan
• Business development = Networking
• You (CEO) are going to be the “Sales Guy” for
a while

12. Red Flag #66
“Our burn rate is kind of high, but we
would be making this king of money
if we worked at a regular company.“

14. Red Flag #77 “IPO”

15. http://blogs-images.forbes.com/truebridge/files/2012/04/IPO-Chart-21.png

16. Red Flag #88
“We have no competition“

17. You have competition!
• If you thought of it, chances are
someone else has too
• If you haven’t found them, you
haven’t looked hard enough
• The status quo is competition
– It’s not really that big of a
problem
– It’s too costly to solve
• Competition is validation of the
market and customer base
• Second Mouse…

18. Red Flag #99
“If we capture just
2% of this $57 Billion
dollar market, we’ll
be a $100 Million
dollar company“

19. http://geekyfry.com/management/marketing/pam-tam-sam-som/
Be Realistic!
Know your
Target Market
Have a Plan

20. Red Flag #1010
“Our revenue
projections are very
conservative“

21. Guess well.
2013 2014 2015 2016 2017
Number of Units Sold 5 50 500 2500 5000
Avg. selling price 800.00 850.00 900.00 950.00 1000.00
Gross margin % 68.75 70.59 77.78 78.95 80.00
Below in ($000s)
Revenues 4.00 42.50 450.00 2,375.00 5,000.00
EBITDA -128.77 -290.47 -196.89 -294.79 837.40
Cash burned /
created
-128.77 -290.47 -196.89 -294.79 837.40
Funding required 128.77 290.47 196.89 294.79 0

22. Honorable Mentions:
• “I want control of the company, so I retain 51% ownership share.”
• “I have been working on this my whole life”
• “My team is made up of my brother Chuck, my cousin Bobby, my
wife Janet is CFO and my dad is chairman of the board.”
• “We had an early investment of $1.2 Million about three months
ago and need just a little more to complete the beta site.”
• “I’m a serial entrepreneur”
• “This is our last shot, we really need your support”
• “I’m looking for $500,000 in exchange for 10% of my company”

24. Thank you
Wiley Larsen
Venture Manager
ASU Entrepreneurship and Innovation
Focus: Faculty Startups / Furnace
wiley.larsen@asu.edu
480-884-1803

25. Resources/References:
• YouTube: Bill Reichert – Top 10 Lies Entrepreneurs tell VCs
• Rob Adams: A Good Hard Kick in the Ass
• http://geekyfry.com/management/marketing/pam-tam-sam-som
• http://blogs-images.forbes.com/truebridge/files/2012/04/IPO-Chart-21.png
• http://www.garage.com/resources/perfectingpitch.shtml
• Dragon’s Den https://www.youtube.com/watch?v=RidDRTl_SQs
• Marketing your Startup – how to be heard above the noise 7/11/13 2:30pm
• Furnace Technology Transfer Accelerator 7/15/13 2:30pm
• Licensing IP from Universities – 7/17/13 12:00pm
• Intro to Equity Financing -- 7/17/13 4pm
Upcoming Presentations: