I like to tell the story of the first time I filled out a questionnaire about Rockies Venture Club’s activities for the Angel Capital Association. When I got the the question about how many companies we present each year, the choices were something like 1-3, 4-7, 8-10, 11-15, 16-20, 21-25, 25+ pitches per year. With over 100 companies pitched in 2012 and 80 in 2013, we are off the charts!
I have a huge respect for the people I’ve met at the ACA, so I began to wonder whether we were doing something wrong. I started looking at how the different angel groups functioned and why we were different. Here is a summary of what I found:
1) RVC is unique in that it serves the whole community and not just investors. We have pitch events with 100+ people watching four pitches every month and conferences with hundreds of people watching 12 or 24 pitches. We reach out to the community through partner groups. If you just have a few dozen angels to depend on for your deal flow, then you won’t see a lot, but if you involve the whole community, then the deal-flow suddenly becomes significant.
2) RVC is also unique in its focus on education. By educating both the angel investors and the entrepreneurs, we make a smarter environment full of smart investors and savvy entrepreneurs. This means that there are more high quality deals available than if no quality educational resources were available. Without Pitch Academy we’ve noticed that most (but not all) of the pitches we see are pretty flat. They’re not only poor pitches, but the thinking behind them is often thin and poorly researched. RVC workshops help entrepreneurs to build a solid logic to their plans, backed up by good research and hard work. This alone is not enough to succeed, but it definitely raises the bar and puts higher quality deals in front of investors who now have the tools to really evaluate the deals that they’re looking at.
3) You could challenge our plan to pitch roughly one in ten applicants. “Why not just pick a few really good companies and go with them?” There are a few problems with this challenge. The first is that in many cases you don’t know which companies are good until you pitch them and get into due diligence. If you just goody-pick the companies with great executive summaries all you get is companies that are good at executive summary writing.
4) What about the 75% of RVC pitch companies who don’t get funded? I’m often surprised about what does and what doesn’t get funded. What I have seen is that something like two thirds of the companies that don’t get funded didn’t make it because they weren’t ready to pitch yet. They still had homework to do in order to back up their plan and to refine their message and build a sharp strategy. Some times these companies give up and other times they go back to the drawing board and come back six or twelve months later with a new CEO on board and the funding falls immediately into place. Giving these companies the opportunity to pitch provides them with the perspective that they need to grow and get funded – or better yet, it teaches them how to bootstrap so that they never have to be beholden to angel or VC investors!
5) Seeing lots of companies is the best way to build your 10,000 Malcolm Gladwell hours as an investor. Some angel groups pitch only one company per month. It would take one of those angels ten years to see as many deals as an RVC investor sees in a year. Which investor do you think is going to have the ability to spot the winners from the losers? Pattern recognition plays a big part in investing and the only way to build that is to see lots of deals.
6) Enterpreneurs benefit by seeing lots of pitches too. If entrepreneurs can see lots of great pitches, they get an idea for how high the bar has been set in our community. They see what investors like and don’t like and they get to see which companies get funded and go on to do great things. In many angel groups, the first pitch the entrepreneur sees is their own. This is a bad way to learn how not just to pitch your company, but to build a winning strategy and team.
After thinking about it, my conclusion is that, like so many things, the best solution is to reach a balance. It’s great to pitch a lot of companies for perspective, exposure and deal flow, but you also have to be prepared to limit the companies pitching to the ability of your entrepreneurial community to produce quality deal flow. Right now we’re seeing 80 quality deals a year, but if things slow down, 60 might be the right number, or if they heat up, then maybe 120!