By Garage Technology Ventures

One of the most essential and endearing characteristics of entrepreneurs is their unquenchable optimism. This is the foundation for the rabid enthusiasm that enables entrepreneurs to believe, in the face of all odds, that they can change the world. This is a critical asset for entrepreneurs, but it is also a potentially fatal flaw.

One of the drawbacks of unrestrained enthusiasm is a tendency to overestimate the likelihood of success, and underestimate the likelihood of setbacks, in each of the many dimensions of execution required to build a successful company – delivering product on-time and on-budget, getting customers to buy that product, and generating a profit, for example.

Investors have seen this all too many times. So, when an entrepreneur stands before them pitching his or her vision and telling them that this new company will change the world and be bigger than Facebook, with only $2.5 million of funding, you can understand why some investors might be skeptical. What the entrepreneur might characterize as bold optimism, investors might consider naivete. Or worse, having heard the same old exaggerations so many times before, some investors might just decide the entrepreneur is lying.

This is a list of the most common, seemingly harmless “lies” that may wind up in your pitch, limiting your career options if they destroy your credibility with investors.

The origin of this list dates back to a conference we attended many years ago.  While standing with some veteran VCs at the back of the room listening to an entrepreneur pitch onstage, one VC was overheard asking another VC,

“How can you tell when an entrepreneur is lying?” 

The other VC shrugged.

“His lips are moving.”

There is a fine line between passionate enthusiasm and fraudulent misrepresentation. Investors love enthusiastic entrepreneurs, but they are tired of hearing the same old reality distortions that often wind up in pitches.

And so, in the spirit of wanting to be helpful to entrepreneurs and to those who coach them, as well as to those who listen to them, here is our list of the Top Ten Lies of Entrepreneurs:

1.  “Our projections are conservative.”

Of course they aren’t. Most entrepreneurs project that their company will be more successful than the most successful companies in history. Find some comparable successful companies to model yourselves after. We don’t expect you to be conservative, but investors don’t like entrepreneurs to be delusional either. We do expect that you have a reasonable understanding of the realities of business and the economics of growing a company.

2. “Our target market is $56 billion.”

You haven’t done your homework. You need to segment your market opportunity more carefully. Most startups are, in reality, targeting $0 billion markets – markets that are just emerging, or niches within markets that are not well addressed. If a big market research firm has done a detailed study of your target market, you are probably too late. Don’t talk about how big your TAM is; talk about who your target customers are, how many there are, and how you are going to get them.

3. “We have a world-class team.”

We appreciate your enthusiasm for and loyalty to your founding partners – your university mate and his cousin – but if they are merely extremely talented and capable, that’s okay. Virtually every great team needs to be built over time, and yours will be no different. What is much more important than the global ranking of your founding team is your ability to do well what you have to do today and your ability to attract world-class talent over time. If it happens that you don’t have the best VP of Engineering for your future business, how are you going to attract that person? That’s what investors are more concerned about.

4. “Our average sales cycle is 60 days.” Or, “Our conversion rate is 20%.”

The single most prevalent cause of termination among CEOs is missing sales targets, and the single most common reason for missing sales targets is underestimating the sales cycle. This is an easy test for investors to determine if you are realistic or clueless. Taking the average of your first three beta agreements is not a good way to estimate your sales cycle. Talk to someone who has been successful selling in your target market, and double his estimate. (He’s lying too.) The same goes for conversion rates in online sales. You may have had early success with your friends and family downloading your new app, but don’t think your spectacular conversion rate from click-thru to download to purchase is going to scale.

5. “We have no direct competitor.”

Entrepreneurs have been coached well enough in recent years that they no longer say, “We have no competition.” But this is still a lie. There is always another way to do what you are offering – even if the other way is to do it in-house, or not do it at all. If that’s the status quo in your market, make sure you identify it as your key competition and demonstrate that you understand how to sell around it. Meanwhile, the investor you are talking to has probably already heard of two other companies planning to do exactly what you are doing. You should never try to convince investors that you don’t have to worry about competition. Convince them that you know how to take on all comers.

6. “We have the first mover advantage.”

Never suggest that this is your key competitive advantage. In fact, first movers usually fail, and most entrepreneurs who say they are first movers aren’t really. Sometimes being the first mover can be valuable, if you have the resources to capitalize on it. But usually being the first mover means you will have to spend more money and take more time to develop the market than if you are a “fast follower” and can leverage what others have done before you. (Don’t feel bad; Apple, for example, was not a first mover in anything.) In any case, even if you are a first mover, you had better have something else up your sleeve to overcome the status quo and outrun next year’s competition.

7. “We’ll be cash flow positive in 12 months.”

The single biggest cause of death among startups is running out of cash, and the single biggest reason startups run out of cash is that it always costs more and takes longer to ramp a company than anyone hopes or expects. Investors don’t believe you’ll be cash flow positive when you say you will, but they need to know that you can manage your expenses so that you don’t run out of cash before you validate your business. If you validate your business, you can raise more capital; if you run out of cash too soon, it could be fatal. Don’t box yourself into having no flexibility to cut expenses if revenues don’t come as fast as you hoped.

8. “All we need is two percent of the market.”

This is the updated version of the old saw, “With just one percent of the market, we’ll be huge!” Thanks to the Internet, entrepreneurs these days figure they can double the old number, or maybe they just want to sound bolder. Meanwhile, investors want to find the entrepreneur that is going after the other 98 percent. This lie is the result of not understanding clearly the target market you are going after (see Lie #2 above). If you really understand your market, you would realize you need a much bigger market share to be a successful company.

9. “Our contract with [Big Company] will be signed next week.”

Don’t ever promise something you do not know with certainty will be delivered. Inevitably, the person who was supposed to review the contract will get sick, or get pulled off your project onto something that is more important, like repaving the parking lot. When two weeks pass and your prospective investors want to see the [Google?] contract, the reliability of all those other promises you made will be called into question.

10. “I’ll be happy to turn over the reins to a more qualified CEO.”

Many very successful companies were led by their founders from the beginning. Hewlett-Packard, Microsoft, Oracle, Intel, Apple (sort of), Facebook, and Amazon, among others. But this is rare. Most entrepreneurs secretly harbor the belief that they belong in this pantheon of high-tech leaders. Knowing the odds, however, and the narrow-mindedness of most VCs, entrepreneurs realize that this is the answer they have to give to the question, “Do you think you are the long-term CEO for this company?” If your mission in life is to be the CEO of your own company, then don’t go looking for venture capital. But if your mission in life is to help build a great company, come to terms with the likely evolution of your role over time.

As someone once said, “There are lies, damn lies, and business plans.”

Again, most entrepreneurs don’t really think these are lies – at least not when they use them. Many who read this list believe that they would never be guilty of such sins, but then it turns out that their lies are just subtler variations of the themes above.

A list of Top Ten Lies is, unfortunately, very limiting. There are many other lies frequently told. A few that didn’t quite make the list, but are still noteworthy, include:

  • “Our technology will disrupt the industry.”
  • “We’re expecting a termsheet from another investor next week.”
  • “We’ll have our product done three months after funding.”
  • “If we only sell 40 percent of the company, we still have control.”
  • “We can’t send you an executive summary until you sign a non-disclosure agreement.”
  • “No one else can do what we do.”
  • “We built plenty of cushion into the plan.”
  • “We’ve got a very senior guy from Google who is planning to join once we get funding.”
  • “We’ve got a patent that blocks everyone else.”
  • “This is the only money we will ever have to raise.”
  • “If you don’t hurry, you’re going to miss your chance to invest.”

There may be a germ of truth, or over-confidence, that prompts entrepreneurs to say these things, but keep in mind that investors listen to entrepreneurs pitching their passions many times a day, and what you consider to be a bold vision might come off as naïve arrogance or downright misrepresentation. Assertions like these can seriously hurt your credibility with investors just when you are trying to get them to trust you.

Figure out a better way to express the point you really need to make. Or, as one of our partners says, at least figure out some new lies.

Remember, venture investors are predisposed to like enthusiastic entrepreneurs. We’re on your side. Help us out by screening out these lies and giving us a clear understanding of your business.

Earlier and shorter versions of this list have been published many times in various forms since it was originally presented in 1999 at the Garage “Bootcamp for Startups.” Harvard Business Review published it in 2001, and Guy Kawasaki also posted it on his blog and in the book “Reality Check.” There is also a video version on Stanford’s website:

If you have any questions about this article, or about Garage Technology Ventures, you can contact Bill Reichert, Managing Director of Garage Technology Ventures (email:

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