Investors roll their eyes when entrepreneurs make overly optimistic claims like: "This is a $1 billion market. If I just get 3 percent of it I'll have a $30 million company in three years."
You may reach numbers like that if you get really lucky, but in most cases, it's harder to win early customers than entrepreneurs think, said Charlie Brock, CEO of Launch Tennessee, a public-private organization focused on building entrepreneurship in the state. He has raised angel capital for start-ups and provided it as a backer.
Instead of trying to dazzle investors with enormous revenue predictions, show them how you'll win sales, Brock advises.
"I'd much rather see a bottom-up approach: This is my target customer. Here's how I'm going to grow this business from one to 10 customers, 10 to 50 customers—and on up," said Brock.
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Investors are equally skeptical when entrepreneurs cite an enormous market size for a start-up. If you're raising money for a mobile app, for instance, don't define your target customer as "everyone with a cellphone," advised Brock. "Is it really people between ages 18 to 34 who text more than 1,000 times a month? Break it down!" he suggested.