Ditch the Pitch!

As most startup founders, I think about fundraising, especially pitching to investors, a lot! I can't imagine that anyone actually likes pitching to investors, but more importantly, I don't think the process is an effective way for investors, even initially, to evaluate a business opportunity or for founders to identify the right investors for their business.

Focus on the Wrong Things

What is the purpose of this 10 minutes song and dance in front of a group of strangers? It's entertaining for sure and even makes for good tv shows, but all that's people are evaluating at this point is the presentation skills and performance. Imagine Robert De Niro pitching your business! He'd do a really fine job.

And if you think 10 mins is not enough time to convey your business idea, try 30 seconds! Here is an actual email I received recently.

By placing so much importance on Pitching and Pitch Decks, investors are basically skewing the process towards charismatic sales people that could sell anything to anyone, as that's somehow a good indicator of a future business success, and in the process, eliminating potentially good business opportunities at this early stage. 

In recent years we've heard of at least two good stories about persuasive charismatic founders and the astonishing downfall that they've created for their companies - Adam Neumann and the Art of Failing Up and who can forget Elizabeth Holmes: The hypnotic tale of the rise and fall of Theranos.

And what's a good indicator of a future business success? Apparently, timing of when the company was launched, according to the research from “The single biggest reason why start-ups succeed” - not the market size, traction, or the founders and their pitching skills.

Almost Anyone Can Become Good at Pitching

There are 41,300,000 results on Google on "How to Pitch to Investors" from "13 Tips on How to Deliver a Pitch Investors Simply Can't Turn Down" to "How to pitch to investors in under 2 minutes" - with enough practice, almost anyone could become good at pitching and giving rehearsed answers. But what's the point?

"Fake it till you Make it" Mentality

Someone said to me that, by default, investors are looking for excuses to say no to everyone who pitches them. So they are looking for any evidence that something is wrong. And who can blame them? Who wants to be sold to? Naturally, we all put our defenses up when we hear a sales pitch.

Also, in a startup (by definition), there is always something wrong or missing, as in the beginning, you don’t have all your ducks in a row yet - your MVP is not built yet, because you have no funding and you can’t attract the right people yet, as you don’t have much to offer them, or you have the right people, but no funding to put them on a salary, so everyone is scrambling to find the time to work on the project outside their regular work/family hours. You can’t demonstrate traction or validate your sales numbers yet, because without the MVP, you can’t start selling etc. 

When you tell things as they are, you'll usually hear "You are too early for us! Come back when you have more traction." That's a standard answer founders hear when they initially approach investors.

Silicon Valley's 'Fake It Till You Make It' startup culture is not the only example. To some degree, all startup founders feel the pressure to over-sell and tell the investors what they want to hear.

Side Effects of Pitching

When you pitch, you have to cover a range of topics, break-down complex things into digestible bits, so even your mother can understand, know your numbers, be enthusiastic and project confidence at all times, and do this in less than 10 minutes with 10 slides or less. Then brace for criticism, because no matter what, your pitch will never be perfect. 

Potential side effects for founders:

1) Constant negativity can start wearing you down and shatter your confidence.

2) I know some startup founders that delay pitching to investors for the above reasons, trying to create enough traction on their own, so when they pitch, they've checked all the boxes and have good answers, though potentially slowing down the development of their businesses.

3) I've also seen one situation where a Life Sciences startup founder hired a CEO that could deliver a good pitch for him, while he was standing beside him for questioning portion of the pitch. I saw him pitch before he hired the CEO and noticed that he didn't deliver what's considered "a great pitch". He wasn't a showman. He was too technical and not inspiring enough and probably got advice from investors to hire someone who could deliver a better pitch than him. It was kind of sad.

4) Pitching and all the prep work that goes with it takes a lot of time and takes founders away from their businesses. Startup founders to me are the most hard-working people, and they are usually already stressed and stretched to the limit. After participating in a few pitch sessions and pitch competitions, I felt that most of them were a waste of my time, and that my time was better spent on building the business.

5) Quite often, you don't even pitch to investors directly. First, you have to pitch to junior analysts. It's like trying to get to a boss through a secretary. They act on a script and the usual answer is "No".

6) Sometimes you not only lose time, but money too, when you sign up for the pitch competitions.

7) You'd think feedback is good, but the more you pitch, the more contradictory feedback you'll get, which will be hard to reconcile at some point. You can end up in this never ending cycle of updating your pitch deck and tweaking your slides, trying to please various investors. In this situation you actually don't get any further ahead, you just get confused.

8) For many startup founders, pitching to investors doesn't actually result in raising money and the "Startup Phase" (with endless pitching and bootstrapping) is stretched for years, holding them back.

I am not sure why we put startup founders into this “survival of the fittest” mode. Even though it’s important for them to be high performers, to be resourceful and creative - without enough funding, it often feels like we are asked to perform miracles. No wonder 90% of startups fail! There must be a better way to raise seed funding.

What do the Investors Think?

I often wonder if investors are thinking the same, that the current startup fundraising process is ineffective and if there are better ways for them to identify promising business opportunities.

As an investor, you are also a partner in the business. You have to help make winners, not just pick winners, and in order to do that, you need to connect with the founders and the team on a deeper level, beyond pitch decks and numbers. I am not sure if the current startup fundraising process is sufficient enough for the investors to make those connections.

What's the Solution?

I am sure there are a number of ways to redesign and improve the current startup fundraising process. I like, for example, what Clearbank is doing. From their site:

"Clearbanc uses data and machine learning algorithms to underwrite your business fast. No meetings, no flights, no business plans, no pitching."

We need more fundraising alternatives like that!

For now, I just wanted to share one simple idea. In his recent article, Michael Hageloh, a former Apple sales executive, says:

"People despise feeling like they’re just one more target a sales rep needs to make his monthly numbers, and who can blame them? That’s why, for me, selling was all about the relationship. When I called on university presidents and deans, I first sold them on me. Then on Apple. Finally, we talked about products."

So if the selling is all about the relationship and if the goal for investors is to find a promising business opportunity, why don't they just go for an old-fashioned coffee and chat, and try to get to know the founders, as much as their business? The series of conversations like that could potentially lead to a more effective process for assessing the value of startups.

1) It's a two-way conversation, not a monologue. Conversation is more fluid vs a structured pitch, where both parties could learn from each other and adjust the conversation, based on the new knowledge that they've just gained. Just don't limit the conversation to 10 minutes. Make it at least 20 minutes :)

2) It's a less intimidating situation for founders, compared to a room full of strangers, so they'd be less nervous and more like themselves. Also, both parties would be on an equal footing.

3) The goal of a conversation is to learn about each other as much as possible and to establish a mutual fit vs the goal of the pitch is to sell.

4) Don't stop at one conversation! Schedule 2-3 conversations over a few months with more team members and see how things are progressing through emails. Multiple meetings over a period of time will probably paint a fuller picture of the business.

I know that everyone is busy and spending time on in-person meetings might sound like a waste of time to some people, but to me, it's more about quality than quantity. Let's try something different - let's ditch the Pitch Deck, and while we are at it - ditch the Pitch Competitions too - and go for a coffee!

Do you agree with me? Do you want to ditch the pitch? Let me know what you have to say about this.