Why VC investors should pitch to startups

Since the early 2010s, tech publishers have been writing about why pitching competitions and events aimed at connecting startups to capital are broken. Yet, nearly 10 years later, Y Combinator organises one of the largest startup showcase events to date hosting nearly 200 startups pitching over two days across multiple stages. The audience is primarily investors who will receive the pitching schedules only an hour prior to the event, at which point they will need to hastily decide which stage they want to sit in on. This isn’t ideal for founders or investors. TechCrunch covered this story and concluded that this ‘is a logistical reality that investors and founders are just going to have to accept comes with having this massive of a batch’. Is it really?

CURRENT PROBLEMS

Here is a recap of why pitching events don’t work for startups and investors.

Entrepreneurs first. Practicing for a pitch can be very time consuming. Accelerators will often train their founders to know their pitch so well they are able to recite it forwards, backwards and in their sleep. Slides need to look perfect, too. The preparation for these 5 minutes on stage could take up a few days, if not weeks, that could be spent further developing the product or selling it. Pitching events are worse for VCs. The main problem is that they sit through several hours of pitches when usually only 10% will be relevant to their investment criteria. To make things worse, the whole experience can overvalue that 10% and triggers cognitive biases which can lead VCs and angels to subsequently meet founders whose great presentation skills are masking subpar businesses. In fact, data-driven accelerators have found that startups barely raise capital as a result of the hype built around these pitching events and have tried to find solutions to this problem. Some examples of alternatives include closed investor and startup networking events, speed dating sessions and in some cases… more pitch practice. However, none of these methods take measures to:

1. Remove the time inefficiency for investors associated with startups who do not satisfy their investment criteria;

2. Allow startups to be assessed on their business strengths rather than presentation skills.

OUR SOLUTION

We decided to shake up the norms and trialled flipping the Startups-Pitch-to-Investor event experience on its head. We know that investment theses/criteria are rarely explicitly communicated. We are guilty of this at L Marks as well. If founders have never spoken to us, our stage and technology vertical preferences would be unknown, as would our average ticket size, and more importantly what we cannot invest in. This is the first thing investors find out about a startup before before taking the conversation further. Founders are often in the dark about what the investor focus is, and therefore spend a large amount of time reaching out to angels and VCs who do not or cannot invest in their industry, technology or stage. On their end, investors will hear hundreds of pitches most of which don’t comply with their limited partners’ terms – another huge inefficiency.

This is why we organised Investors Day – a breakfast event which starts with over a dozen VCs pitching to a room full of startups. The VC presentations last about a minute each. Their deck is solely composed of 1 slide with the fund logo and name of the fund representative (that L Marks prepared ahead of the event). The content communicated is simply their investment criteria i.e. is the minimum information required for founders to know whether their business is relevant for the given fund or not. Zero preparation time is required for investors with this model.

After all the VCs have pitched, founders are paired with the most relevant ones to talk to during a private 1-2-1. Each conversation lasts about 10 minutes, such that in an hour, startups have met with 6 VCs whose investment criteria they fit.

THE RESULTS  

L Marks’ Investors Day was a success for several reasons. Founders appreciated the reversal of roles. For the first time, they had investors ‘pitch’ to them rather than the other way around which makes sense in a world where startups need funds as much as funds need startups. More importantly, founders got warm introductions and the opportunity to build relationships with highly relevant investors for their businesses. On average, about half of each startup’s 1-2-1s resulted in a follow-on meeting.

The format was also well received by VCs who realised that it is much more efficient for them to stand up and present their funds to a group of startups if it means only the relevant ones pitch back to them afterwards. Again, they arranged to meet with nearly half of the startups that pitched them during the 1-2-1s. And, in a couple of months time, we will also know how many of those meetings resulted in funding raised and we will be able to back the success of this event format with a numerical value.