I attend a few tech conferences, primarily in the consumer internet space. Usually, these conferences have some way of demo’ing a bunch of new startups trying to peddle their wares and trying to woo the investor community. The format is a little different each time, but there is some version of the company’s CEO presenting on-stage, with a panel of judges trying to, well, judge the pitch and the business.
There are a few themes that I have seen consistently across these events, irrespective of which city the conference takes place in, and what the latest and greatest topic in the internet happens to be. For the most part, the takeaways from the conference are not very much, except for a few shining and unusual experiences (for example, I met a guy yesterday who makes flying cars).
Based upon my previous experiences, I can already predict what most of the judges are going to say. Typically, the judges’ panel consists of 4-5 members, with 2-3 members from the investor community, 1 entrepreneur, and 1 media person. It’s much easier to predict what the investors and media people are going to say than what the entrepreneur is. The entrepreneur focuses mostly on the CEO, while the rest focus on the quality of the pitch (and not the content), and the addressable market. I will write in detail about the problems of the addressable market theory in a future post, but for the purposes of this post, the feedback falls mainly across the following three areas.
1. ‘Refine the pitch’, or ‘I couldn’t really understand your product’
Although it has come to be accepted that one must have a good pitch to woo the investor community, the question still arises: Why? I see the argument that the pitch must be refined because often times the investor is a super-busy person (or claims to be anyway), so the investor’s time should be used by the entrepreneur as a scarce commodity. Good investors also get pitched a lot, so if you are only getting a short attention span from them, it’s better to make the most of it quickly. But when it comes to conferences, the situation is very different. The judges, as well as the investors in the audience, are for the most part captive audiences. They can be on their iPhones checking email or whatever, but they are not really going anywhere. So, I really think that although the entrepreneur should do his best to refine the pitch, practice and try to make most of the opportunity, the investor shouldn’t really be criticizing the pitch. Instead, they should be focussing on the content behind the pitch. Most of the tech entrepreneurs (with the exception of probably Steve Jobs) are not great presenters, so let’s just leave the feedback on the pitch on the backburner. For me, when someone criticizes the pitch, it really feels like trying to find faults in the grammar and spelling of an engineering report. Yes, it makes a difference, but please be smart enough to look beyond that.
2. ‘But none of these companies are changing the world’, or ‘I dont think your product will make too much money’
Ah yes! This one is my favorite. This is not common to just investors, but the audience at large. There are multiple forces pulling the company in different directions. The main ones are 1) be innovative, and 2) make money. Of course, I don’t believe that the market is completely efficient, but it is not completely inefficient either. So, the two forces are actually pulling the company in two different directions, not quite 180 degrees apart (180 degrees apart would be in a completely efficient market), but you get the idea. Thus, the company has to find a way to change the world, and make shit load of money right off the bat. How many companies do you know that actually did that? You know, the ones that had an innovative product that a large portion of the world is using, and that had a strong plan to make money? I know zero. The reason is that if there is a clear way to make money, then it would already have been done. Efficiency in markets exists when the knowledge required to tap an opportunity is low. As the sophistication increases in a particular space, so does efficiency, since there are more people who are now approaching expert-level thinking. Therefore, it stands to reason that the fewer the number of experts in any domain, the more opportunity that lies in that domain. Consequently, it also follows that making money is not at all obvious. One corollary to this idea is that as making money becomes more obvious, more people becomes experts to fill in the gap.
3. ‘There isn’t an addressable market out there’.
The same case could be made for Yahoo, Microsoft, Google, Facebook, Twitter, and new products that will be out there. Asking for an addressable market is really a way of saying ‘I can’t see how you will make money’. I can kind-of understand this coming from the investor because the pressures on their business is vastly different from the pressures on an entrepreneur. Even when investors have been on the other side of the fence, the truth is that they are now in a different situation in life, and obviously, they are going to judge things based upon their perspective. Of course, some are smarter than others, and also more risk-friendly than others, but fundamentally, their goals in life have changed. What I don’t understand is when other entrepreneurs think like that.
Most of the above feedback from investors really means that they don’t really like the team, and are not confident that the team will deliver and stay the course to solve a worthy problem in the space. One of the key ways to judge startups is, of course, looking at the person presenting, what she has done in the past, how passionate she is about the problem space and how committed the team is to the problem. Notice that I didn’t say that they need to be committed to the product, but only the problem space. Most of the time, the exact problem is a little unknown and the product is only a first iteration anyway. However, the effect of the feedback from these conferences is that a lot of entrepreneurs start taking less risks instead of more. Taking risk for it’s own sake is, of course, a gambler’s trait, so I am not advocating that. I am simply advocating trying to solve bigger and more important problems, which necessarily come with greater risk. I believe that true entrepreneurs quit their jobs to do that anyway.
For further reading on similar ideas, read this excellent blog by Ben Horowitz, as well as this one by Glenn Kelman.