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Stage Spotlight

Ditch the Pitch

by Jason Jones, President

In the past few blog posts I have written, I have discussed some of the issues that I think are plaguing the current startup ecosystem and why they are making it tough for entrepreneurs to build successful tech companies.

Another subject contributing to what I believe is quickly becoming an unsustainable startup model is the pitch – specifically, startup pitch events. Every business owner needs to have a pitch: something that you can use to tell people about your company, whether you are looking for potential investors, customers, or employees. This is not a new concept. However, a more recent business development is that of the startup pitch event, where founders have the chance to not only present their company to potential investors, but also directly compete with other startups for the investors’ attention and in the end, capital.

Go to any business or entrepreneurship-oriented website and search for “pitch” tips – and you will find endless lists of what to do, or what not to do when pitching investors. Accelerators and incubators also hold their fair share of startup pitch preparation courses to help founders properly articulate their business concepts to potential investors and customers. Learning how to pitch is a valuable business skill – it can become a make-or-break factor when trying to secure funding or sales. Unfortunately, this is also the root of the startup pitch event problem.

Startup pitch events have become massive productions, and they have been hyped so much that founders are convinced that they have to take their time and resources out of their everyday operations to prepare for them. You have to come onstage and describe your business within a certain time limit – in a way that is informative, but perhaps more importantly at these events, in a charismatic and awe-inspiring manner. What happens at these events is that it isn’t always the best business model generating the most interest from investors and the media – it’s the flashy smooth talker whose business might not be as sound as that of the timid guy with solid numbers and client base.

This is one of the biggest reasons why venture capital funding today is so close to that of the dot-com years and why many are sounding the alarm on an impending bubble. Investors are swept up in the hype of a startup that is the “Uber for this” and the “Tinder for that” when underneath there is no solid plan for scaling or monetization. Paul Orlando has written extensively about the problems with startup pitch events in his book Startup Sacrilege, and says that there are two things that you would often find with the amazing startups that wow the audiences at these events:

First, early outward signs of promise like a good pitch or winning an award create a halo effect on the founders, but do not let you draw a straight line to later worth. Some of the best pitches I’ve heard are from companies that closed down just months afterward.

Second, much of the startup world socially rewards behavior that has little bearing on success. The startup entertainment that I keep mentioning is a constant distraction to avoid.

Paul Orlando goes on to talk about how these events have become mostly self-congratulatory events for the organizations that put them on – whether those are accelerators, incubators or others involved in the industry. Many of the startups that win these events and garner a lot of hype often end up failing down the road. While the winning pitches at these events do undergo due diligence, there is still a chance that your startup may not go that far if your spokesperson doesn’t woo the audience the way another startup does.

Part of the problem seems to be that many people within the tech industry – not only entrepreneurs, but also investors and even the media – seem to have a very short memory when it comes to the current crop of companies with skyrocketing valuations. An article from the New York Times pointed out the rise of delivery startups, which is eerily similar to the delivery dot-coms that skyrocketed (and ultimately failed) in the dot-com boom in 2000. VC firms are continuing to feed the hype of these startups because of the attention they are getting, with seemingly little regard for the fact that their business models are tough to scale and therefore their growth is unsustainable. Even renowned venture capitalist Bill Gurley has been talking about the unprecedented and perhaps unsustainable risks that the startup community is currently taking on.

Ultimately, startup pitching has become a magic act of sorts: a smoke bomb here and there, and if you manage to pull a rabbit out of your hat, you might have a chance at funding. There needs to be a move back to basics: funding should be given to companies with solid business models and plans for growth. Entrepreneurs should think about every pitch opportunity before taking them on and diverting themselves from the everyday operations of their company.