What’s the best way to talk about business risks?

Paul Graham (Co-Founder & Partner at Y Combinator)
How to Raise Money

Sometimes a competitor will deliberately threaten you with a lawsuit just as you start fundraising, because they know you’ll have to disclose the threat to potential investors and they hope this will make it harder for you to raise money. If this happens it will probably frighten you more than investors. Experienced investors know about this trick, and know the actual lawsuits rarely happen. So if you’re attacked in this way, be forthright with i… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
What Do I Wish Entrepreneurs Would Ask? – AVC

All businesses have challenges, weaknesses, risk factors. These don’t generally get in the way of us investing, as long as we and the entrepreneur(s) are aligned about them and the need to manage and mitigate these risk factors as quickly as possible. We are drawn to an investment by the upside potential of the business and we recognize that every investment we make has significant downside potential as well. Our hope is that the founders and man… (read more)

Reid Hoffman (Partner & Co-Founder at Greylock Partners)
LinkedIn’s Series B Pitch to Greylock: Pitch Advice for Entrepreneurs

Steer into your investors’ objections. There will be one to three issues that are potentially problematic for your financing — address them head on. You have the most attention from investors in the first couple slides. Most investors arrive with questions, and if you proactively show you understand their principal concerns, you earn their attention for the rest of your pitch.

Reid Hoffman (Partner & Co-Founder at Greylock Partners)
LinkedIn’s Series B Pitch to Greylock: Pitch Advice for Entrepreneurs

Experienced investors know there are always risks. If they ask you about your risk factors and you can’t answer, you’ve lost all credibility because they assume you are either dishonest or dumb. Explicitly identify the risks that could thwart your success and how you will mitigate them. And instead of waiting until investors ask about your risks, share them proactively so you build trust.

Reid Hoffman (Partner & Co-Founder at Greylock Partners)
LinkedIn’s Series B Pitch to Greylock: Pitch Advice for Entrepreneurs

Entrepreneurs often say they have no competition, assuming that’s an impressive claim. But if you claim that you don’t have competition, you either believe the market is completely inefficient or no one else thinks your space is valuable. Both are folly.

Reid Hoffman (Partner & Co-Founder at Greylock Partners)
LinkedIn’s Series B Pitch to Greylock: Pitch Advice for Entrepreneurs

Show that you’re paying attention to the market. Instead of merely saying that we knew product-market fit is key, we wanted to show that we did the work. We used quotes to show that we were talking to credible individuals struggling to solve our problem who were giving us feedback on our products. There are other methods, of course, such as graphs and data

Reid Hoffman (Partner & Co-Founder at Greylock Partners)
LinkedIn’s Series B Pitch to Greylock: Pitch Advice for Entrepreneurs

One of the virtues that entrepreneurs get from talking to many investors during the financing process is a wisdom of crowds that helps you figure out what the real risks are.