Spoiler: this is an observation about life cloaked as an observation about startup pitches.
An investor’s first deep look into a startup often begins with a “pitch deck”. A pitch deck is a short PowerPoint deck that founders prepare to summarize their company, their product offering, their intended customer base, their financial projections, their current progress, and so on. Sample pitch decks can be found here.
Okay, so you’re reading the pitch deck, you skim past a slide, and then you hesitate. There’s an odd feeling in your gut and you’re not sure why, so you go back to the previous slide and read it again. And that’s when you find The Deception. The Deception can take on countless forms:
A startup focused on dieting exclaims that its revenues doubled last month. It doesn’t mention that last month was January, and that thanks to New Year’s resolutions, revenues always explode in January and then implode in February and March.
A social network claims that 80% of its users use the site everyday. What’s not mentioned is that the site is still private and its users all the network’s employees and their family members.
A company with a neat hardware product talks about their $5m annualized** revenue. What they neglected to add is that they ran a huge 24-hour promotion last week, had $15,000 in sales, and then extrapolated that outlier day’s revenues to an entire year.
The most obvious problem with these deceptions is that they are unethical. Even if you think you can get away with lying, you should consider that losing your integrity can be far more expensive than failing to get funding for your project.
Of course, some people care more about money than about ethics, but deception fails in that context, too. There are three things that can happen when you lie to potential investors:
They figure out the ruse before deciding to invest. If this happens, they’re almost certainly not going to invest.
They figure out the ruse after deciding to invest. If this happens, they’re going to be bitter, they’re not going to invest in anything you do in the future, and they’ll probably warn all of their other investor friends not to work with you.
They don’t figure out the ruse. Congratulations, you’re safe! Consider, however, that if whatever you lied about wasn’t important enough to be noticed after the investment, then it probably wasn’t important enough to lie about. You risked your reputation for nothing.
I understand why it’s tempting to want to exaggerate or even mislead: your venture is just starting up, you have a few glaring weaknesses along with all of your strengths, and you really need the money. Even though it’s a tempting path, don’t give in! There’s a ton of downside and very little upside. If you have a big weakness, it’s better to avoid talking about it rather than to lie about it. The best approach, however, is to be honest. If something is not going well at your startup, figure out what it is, brainstorm possible solutions, and tell people about your plan of attack. You’ll get feedback and advice, you’ll get respect for being open, and you’ll be setting a good example for your employees and the startup community.
I think the “admission > omission > deception” equation holds true outside of investing, too. It’s tempting to create a great image for yourself, even if that means an exaggeration here or an outright lie there. Regardless of what happens in the short run, however, dishonesty usually hurts in the long run. For example, it’s easy to fib on a resume. Maybe you can exaggerate your management role in that project you worked on in 2004. Or perhaps you can list your degree as computer science even though you actually majored in accounting. Who is going to check, right? This will work for a few months or a few years or a few decades, until someone decides to do a deeper background check. They’ll check LinkedIn, discover that one of their friends worked with you in 2004, and call that friend to ask about your management experience. “What management experience?” their friend will reply. Or they’ll call your alma mater and find out that the only time you got close to a computer in college was when you wanted to play Pacman. That’s when you’ll fall from grace.
The moral of the story is: don’t lie . You might be able to get away with it, but you probably won’t. Lying is not worth the reputation risk, nor the anxiety about being discovered, nor the myriad of other potential consequences. Besides, succeeding with honesty and integrity is much more satisfying.
** ‘Annualized’ revenue means that you take revenues for some recent time period, and then assume that they would hold steady for a full year. For example, if you sold $100 of homemade cookies last week, you could claim to have an annualized revenue of $5200/year.