The Investor Pitch

Recently, I received an email from a potential investor that required a second read. On closer inspection, it was essentially a proposal to sell me services, with a hint of investment to sweeten the deal.

Before I offend any of my investor acquaintances, let me clarify: any investor should ideally contribute more than just capital. The added value could manifest as valuable connections, insightful advice, or even structured programs that can guide startups, as often seen with private equity firms who have well-defined strategies for profit.

Then there’s NewChip, a fee-based online accelerator that was once a favorite in the startup community until it declared bankruptcy earlier this year. This raises an important question: what kind of "value-add" were those founders actually paying for?

Recognizing Generic Outreach

A major red flag for me is when I see the phrase "I came across" in an email. This phrase often signals that the sender merely purchased a contact list that may or may not have included your details.

Reject those website cookies, kids. Every single time.

The beginning of such emails typically follows a familiar investor template, filled with impressive figures in millions and billions. However, these numbers seldom pertain to your enterprise and are often only superficially connected to your business.

Spotting the "Not Only" Clause

Here’s where things get dubious. You’ll often find a "not only" statement, such as, "Not only do we invest in startups like yours, we also provide the world’s most innovative… service."

You may wonder, didn’t I just mention that a good investor should offer more than just money? Absolutely! However, consider my hypothetical pitch to the stockbroker: the value of my consulting time far exceeds that of a mere stock investment. If Apple were to fail, I’d be providing them discounted services. Conversely, if they thrive, I’d gain both compensation and a potential equity stake.

Investors are often on the lookout for numerous startups to approach, and their focus isn't necessarily on your success. They might only care about one out of ten ventures making it big.

The startup ecosystem is in dire need of both funding and guidance, leading many to accept offers that appear to provide a dual benefit of money and support.

My Experience with Startups

Having advised numerous growth-stage startups, I can affirm that the right expertise, applied effectively, can significantly influence success. Most of my referrals come from venture capitalists and angel investors.

I no longer invest in startups financially. I used to, but two reasons led me to step back. First, I’m too hands-on and controlling, which could hinder the companies I back. Second, I found it increasingly challenging to separate my interests.

You can choose to pay for valuable services or accept an investment, which is typically straightforward. However, if you’re funneling investment funds back into service payments, that raises concerns. You risk losing both cash and equity, especially if those services don’t deliver the promised value.

This article originally appeared behind the paywall at Inc. Magazine, where I contribute to a column on startup advice and culture. For free access to my public writings, subscribe to my email list at joeprocopio.com.

Teaching Startup is my initiative aimed at revolutionizing how startup and business leaders receive advice. It offers hundreds of vetted expert responses to genuine startup inquiries—no fluff, no scheduling, no small talk. Get a free trial of our newsletter.