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More in the 50 Questions Series50 questions: How does the structure of the VC industry impact investment strategy? | Is venture capital right for your company? | 50 questions: What’s the difference between angels, VCs and strategic investors |
50 questions: Should I ever pay to pitch?
Together with Nic Brisbourne of The Equity Kicker / DFJ Esprit, I am writing a series of 50 questions you should ask when raising venture capital. We expect the series to run for a year, after which we will collate the answers into a book. We view this as a collaboration, so please comment to help make this series even more useful. This is #34 in the series.
It is a truth universally acknowledged that the two easiest ways to get a person to part with their money is to promise that spending the cash will help to get them laid or to make them rich.
In that case, is it any surprise that there are so many events which promise to introduce you to investors if you only stump up the cash?
Most professional venture capitalists think that you should never pay to pitch. I agree. Here’s why.
1. You have no network at all. Really?
The best advice on how to meet investors is to network. Tap any existing connection you have that might help reach the VC you want to talk to. Use LinkedIn and other tools to find out who you know who knows the VCs you are targeting. Use Twitter, Quora, Foursquare, whatever.
Go to events. Offer to speak. Find ways to talk to funded CEOs.
Hustle, hustle, hustle.
If you can’t find a way to network into a VC, that in itself is a big red flag for a VC. By paying to pitch, you may be fluffing the first test.
2. Are you pitching a project, not a company?
I hate Dragons’ Den. It is a travesty of a programme that perpetuates a myth of an adversarial, combative relationship between investor and entrepreneur where the investor holds all the power and the entrepreneur is little more than a sacrificial victim in the, well, dragon’s den.
It’s nothing like that. A venture investment is a long-term relationship, a marriage from which there is no divorce. If it is forged in the heat of conflict, it is unlikely to be a productive relationship.
There is one area that Dragon’s Den gets it right: in showcasing the number of wannabe entrepreneurs who are pitching a project, not a company. Many of the entrepreneurs there have no product, no revenues, no customers. They are still in their jobs, waiting for someone to grant them permission – financial permission, or some other permission that will take away their fear – to go off and build their company.
That person is not an entrepreneur. He or she has been too conditioned by school, by university, by corporate life to believe that a startup is a small corporation, a division of some larger, successful whole that will pay them a salary and keep them safe. That someone, somewhere, holds the keys to whether they can succeed.
In truth, a startup is a temporary organisation in search of a business model (thank you, Steve Blank). An entrepreneur is someone who will find a way to demonstrate that magic word – traction.
Someone who pays-to-pitch, or goes on Dragon Den, is signalling that they don’t have traction, and are waiting for someone to give them permission to get started. Neither of these are positive traits.
3. If you can’t hustle funding, what hope will you have hustling sales?
Getting funding is one of the biggest tests of your entrepreneurial skills. Your ability to close deals with customers, suppliers, partners and employees is just as important.
A VC doesn’t have many indicators to go on when he or she first meets you. How you came through the door is one of them. If that route showed a lack of chutzpah or ability, that’s another negative signal.
4. The biggie: it’s the weak companies that pay-to-pitch
The crux of points 1-3 is this: companies who don’t have to pay to pitch, don’t. They use their network, their chutzpah, the conferences they attend and the social media they use to get through the door. They follow people like Mark Suster, Nic Brisbourne, Fred Wilson and all the other VCs who use Twitter.
They find a way.
The VCs know this. They know that at a pay-to-pitch event, the highest quality companies will stay away. So the best VCs stay away too. So the investors at a pay-to-pitch event are unlikely to be the highest quality VCs either. It’s a vicious circle, and it leaves many entrepreneurs with a bad taste in their mouths when the promised funding from high-quality investors doesn’t appear.
But there are always other prospects prepared to pay to make money (or get laid.)
Does this mean pay-to-pitch promoters are unscrupulous?
Generally, I don’t think so. Most of the ones I’ve met have a) wanted to help entrepreneurs get funding and b) find it easier to persuade entrepreneurs to pay for funding (they need it) than VCs to pay to attend. VCs get asked to go to a lot of conferences to speak; the number they are prepared to pay for is much lower.
I don’t entirely know the solution. I know that these events have some value. I know that the organisers want to help. In practice, they are not as helpful as they should be.
I wish I had an easy answer.
So should I avoid conferences
Not at all. It is worth going to places where you know VCs will hangout. Every major city has networking events like DrinkTank, or conferences like GeeknRolla which VCs attend. There will be half a dozen conferences in your particular sector. (I’m speaking at half a dozen on social games in the next three months alone). Offer to sit on a panel. Blag a ticket from someone. Spend some money.
Conferences are great. Even funding conferences can be great. The distinction between a funding conference and a pay-to-pitch event is fine.
VCs can tell the difference. Make sure that you can too.