How Startups Get Suckered: The Pitch Contest
In 20+ years of founding and selling companies, advising entrepreneurs and executives, and even back when I used to invest in startups, I’ve seen way too many entrepreneurs — both young and old, both fresh and experienced — fall for some of the same sketchy shit over and over again.
These people aren’t stupid. In fact, most of them are quite brilliant.
The reason why they get lured into these traps is because, for the most part, the traps are built on the foundations of actual opportunities. They look a lot like the real thing, with a twist.
The twist is where they get you.
Let’s talk about the twist that makes public investor pitch contests a thing, and some of the signs that maybe your startup isn’t going to win its next funding round.
An investor pitch is not a carnival sideshow
The concept of the public investor pitch contest started to gain steam about 10 years ago, for a number of reasons:
- Legitimate venture capital and investor conferences, following the lead of the tech startups they were investing in, realized they needed to become less stuffy and more attractive to a younger audience.
- Success stories from incubators like YCombinator, 500 Startups, and TechStars (Stripe, AirBnB, Twilio, SendGrid, etc.), bled into the incubation proceedings, generating huge interest in their demo days.
- TechCrunch Disrupt’s mostly public pitch side event (I won’t call it a sideshow), Startup Battlefield, became a legit springboard into multi-million dollar valuations (Mint, Yammer, etc.).
- Freaking Shark Tank.
Somewhere along the way, the American-Idol-esque appeal of possibly witnessing the next Facebook emerge from the corner of a convention center became a thing to sell tickets to. Soon after, almost every business conference reserved a couple hundred square feet for a lucky few startups who made the cut to pitch for a prize.
I’ll admit, I have judged a few of these things, most (but not all) for local Universities as an educational exercise. I’ve witnessed many more, from the ultra-professionally produced Startup Battlefield to a conference where the pitching founders were struggling to be heard over the adjacent booth where that one vendor kept blaring “Turn Down For What” every time they did a demo of their database management software.
Here’s what I’ve learned.
Never pay to pitch
This should go without saying these days but unfortunately does not. Here’s the order of what should legitimately come out of your pocket.
- You’ll likely have to pay your own expenses, this is fine.
- You may have to purchase a conference ticket, although in my experience, if any portion of the public pitch audience is made up of paying conference attendees who aren’t accredited investors, the pitching companies should be comped conference admission for being part of the entertainment.
Yes, I said entertainment.
- If the event serves no purpose other than a public pitch, or if the public pitch is the headliner of the event, the pitching companies should not have to pay to attend.
- There should never be any kind of pitching fee or even an application fee. This goes against the purpose of the event, which is to give promising startups access to legitimate investors, or maybe reward aspiring startups with a little bit of seed money. That seed money needs to come from somewhere other than the startups themselves.
How public is public?
Don’t get me wrong. There are definitely some legitimate public pitching opportunities out there, even public pitch contest opportunities. And I’m not here to judge how you get your funds.
I’m just trying to judge your chances of actually getting to those funds.
So before an entrepreneur signs up for a public pitch event, they need to ask themselves who the event is for. In my experience, the more public the event, the less the event is about the entrepreneurs, the more the event is about the spectacle, the ticket sales, and brand awareness for the host organization.
What are you pitching for?
I’m going to maybe shed some light on a secret here. The real opportunity in a public investor pitch, or for that matter any public demo of your company or product, isn’t the applause or the prize or where you rank. The real rewards come later.
I’ve never publicly pitched for investment, but when I speak at something like SXSW, I’m not speaking to the entire crowd, I’m speaking to the 10–50 people in the crowd who are going to want to talk to me afterward, preferably those who want to buy or invest or otherwise take more than a passing interest in what I just showed them.
The best outcome of a public investor pitch is a meeting to talk about a real, immediate investment in the entrepreneur’s company. That follow-up meeting can happen right there at the event, or a few days later, but it should be soon.
The next best outcome is straight cash in the form of a prize with no equity attached. I say this because an investment “prize” is usually on terms that are negotiated on the spot, or worse, terms that are pre-negotiated and agreed to before the pitch, and those are far less likely to benefit the entrepreneur.
Finally, be wary of the prize package that includes X-thousand dollars worth of professional services. These are usually just lead generators that go nowhere.
Be careful what you say
Here’s a catch-22. You should never give up intellectual property for an audience that isn’t private, especially during a pitch that’s being recorded and where you don’t have control over where that video goes. But here’s the rub. Any company worth investing in is going to have private intellectual property — secret sauce — that is the real investable product.
This is what has always confounded me about a public pitch. If an investor is going to back me, they need to hear my secrets. They need to know about the stuff that’s locked in file cabinets, and going into patent applications, and names of customers that can’t be public yet, and deal structures that are going to tip my hand to my competition.
If an investor isn’t hearing this, what are they investing in?
Watch out for the chosen one and his friends
There are a couple sneaky ways collusion can raise its ugly head at these things.
The sneakiest way is when one or more startups that are familiar to the host organization are invited to compete, and the expectation is that these startups will blow away the “competition” and take the top honors.
I’m old enough to remember TechCrunch taking some heat when the winner of Battlefield, Layer, happened to be funded by TechCrunch founder Michael Arrington. Yes, he disclosed the investment and recused himself, but doesn’t the very disclosure taint the field?
This is another catch-22 aspect about public pitch contests that puzzles me. These contests aren’t American Idol, despite the way they can feel like plucking a diamond out of the rough. Musical talent can be and often is judged subjectively. What makes a startup investable is way more concrete and factual.
So when the known-track-record startup wins, not only does the right startup win, the event itself seems smart and prescient. So do the judges. Everybody wins. Except all the startups who weren’t the “not-predetermined-but-come-on” winner.
Pitch for investment and learning
Like I said, there are legitimate purposes for public pitches and pitch contests, but the stakes should be super low, the stage should be super early, and it should mostly be about the sales pitch and feedback.
Savvy investors, when they really want to get involved with a startup, want to get in early and privately. A public forum is almost a detriment to that thesis, and certainly not an aid.
Thus, the pitch made to the public should remain a sales pitch, not an investment pitch. And the pitch that wins the contest just shouldn’t be the same pitch that wins the investment. But if a startup has a chance to get in front of legitimate investors and, more importantly, meet with them privately afterward, that can turn into a win.
Just make sure you’re not the sucker at the table.
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