Before the First Date
The essential role of the "pitch" in angel investing and how Angel Ops Step 3: Engage helps network operators think about optimizing the pitch experience
Hot Take: Pitches Suck.
They only show investors the “shiny” parts of a company’s position.
They lend an unfair advantage to strong presenters.
They require an inordinate amount of time and energy to prepare.
I think most investors generally dislike them.
And Yet
They’re everywhere.
“The pitch” continues to be one of the most common ways of introducing a community of investors to a new opportunity.
Over the last 8 months, our team has seen over 300 pitches from founders working in virtually every industry imaginable. Some of them were great. Some of them were awful. Most of them were somewhere in the middle. Like I mentioned last week, putting together a good one is really hard.
So… What’s the point?
Despite the downsides, these strange “pitch” presentations undeniably serve a pivotal role in the startup ecosystem.
They function as a concise method of introducing a company’s core value proposition, story, strategy, and team.
They are (relatively) quick and digestible.
They provide a consistent jumping-off point for anyone who is interested in learning more.
And, they are at the center of Angel Ops Step 3: Engage, which I’ll introduce today.
But first, we need to talk about dating apps.
Dating Apps
Last November, I attended an induction dinner in Houston hosted by the Texas Business Hall of Fame. The purpose of the evening was to honor 6 Texas business leaders as newly inducted “Texas Business Legends.” One of those Legends was Whitney Wolfe Herd, the founder of Bumble and the youngest woman ever to take a company public in the US.
In her acceptance speech, she shared some simple and powerful advice for business leaders: focus on building relationships.
Bumble is an extremely popular dating app where women have the power to make the first move in relationships. The company was founded in 2014 and currently has a market cap of $2.5 billion. As of the February 2021 IPO, the company had engineered over 8 billion connections across hundreds of countries.
What made Bumble successful where so many other dating apps failed?
What’s the Secret Sauce?
I’ve never used the app and have been happily married for the last 5 years, so I’m not qualified to answer that question. Thankfully, there’s a great TIME article by Charlotte Alter/Austin that dives deep into Wolfe Herd’s story, and I think two quotes from the article sum it up well (emphasis mine):
“Like some other dating apps, the company makes its profit through subscriptions and in-app purchases that allow users to boost the reach of their profiles, extend the clock on their matches (most expire after 24 hours) and go back to options they might have missed… More than relationships, or friendships, or in-app purchases, Wolfe Herd is selling the feeling of power to the powerless, a sense of order in an online universe that so frequently seems lawless.”
Clearly, she’s onto something.
So, why is this relevant to startup investing?
A Dating Profile, but for Investors
Because the “Pitch” is basically a dating profile for startup investors.
In my experience, most angel investors are very busy. They run their own companies, have kids or grandkids to spend time with and have plenty of other investments to worry about. For these investors, having a few key sources of deal flow they can trust is extremely valuable. If they’re paying the dues at an angel network, that indicates they trust that this source is doing at least a halfway-decent job of filtering out the bad deals and only putting forth the good ones (see Angel Ops Step 1: Source, and Step 2: Evaluate).
So instead of spending hours and hours networking and scrolling platform after platform, they show up or tune in for the regularly scheduled network pitch event. Whether they like the format or not, do you know what they expect to hear from every startup founder?
A pitch.
The First Date Investor Meeting
The profile page in a dating app is generally designed to help someone decide if they are interested and want to learn more about the person being presented. If yes, the logical next step is a date, where both parties can get to know each other in a more authentic and informal way.
The recurring pitch event in an angel network is generally designed to help members decide if they are interested and want to learn more about the startup being presented. If yes, the logical next step is a follow-up meeting, where both parties can get to know each other in a more authentic and informal way.
Love it or hate it, the pitch is here to stay. That’s where Step 3 of Angel Ops comes in.
Step 3: Engage
As a quick refresher, Angel Ops, which I introduced in this post, seeks to map an answer to the following question: What does the process at a world-class angel network look like? Angel Ops is focused on the backend process of running deals and groups the workflow into 5 core steps. In last week’s article, I wrapped up the second step, Evaluate. Over the next few weeks, we’ll dive into the third step: Engage. The objective of this phase is to connect the best applying companies with the network members and gauge interest, which culminates in a decision to proceed with deeper scrutiny.
Engage
Job: Connect the best companies with the network and gauge member interest.
PO: Proceed - Deals with sufficient interest move on to receive deeper scrutiny.
Within each core step, there are 3 “supporting” jobs-to-be-done that contribute to the primary job. We’ll explore each of the supporting jobs for the Engage step in the weeks ahead. For now, let’s double-click on the overall job for the network operator at this point in the framework.
More Than Just a Pitch Day
One of the things I’ve picked up on over the last couple of years is that when most people hear the words “angel network,” they tend to conjure up a mental picture of a Shark Tank event. They envision Mr. Wonderful, Daymond John, Barbara Corcoran, Lori Greiner, and Mark Cuban sitting on a pedestal and reacting live to founder after founder asking for an investment and negotiating terms.
But what they don’t realize is that for a network operator, pitch day is only a fraction of the work. The majority happens before and afterward in the other 4 steps.
Shoot The Shot
I believe an angel network’s core objective is to produce consummate deals. Once good deals have been sourced and evaluated, the Engage step is where the real test begins. It’s in this step that network leaders “shoot their shot” and test to see if their members have any interest in the opportunities identified. Their success is measured by their hit rate - the percentage of deals displayed that ultimately close.
Therefore, since they only have so many “shots” per event (typically 3-5 startups present, depending on the format), optimizing the effectiveness of that event is of paramount importance. Just like Whitney Wolfe Herd can’t control the quality of the individual using the app, there’s very little an angel network operator can control about the state of the businesses being presented. But what IS under their control?
How well prepared they and their presenters are.
The flow of the event.
The follow-up process.
We’ll dive into those steps, and much more, in the coming weeks.
Final Thoughts
The pitch is an essential part of the startup funding process. Like a dating profile, it provides a concise introduction to a founder’s business for prospective investors to consider. Angel networks are typically structured around recurring pitch events where these presentations serve as the focal point. While pitch events represent a fraction of the angel network operator’s work, they serve an essential purpose. Since a network’s performance is measured by its hit rate, optimizing Step 3: Engage is of utmost importance for sustaining growth.
What do you think?
How do you feel about “the pitch”? What are some things you’ve seen the best angel networks do that have been helpful for engaging with a startup?
Weekly Observations: 3 Lessons Learned
Terminology Matters.🧐
This week, TJ and I attended a virtual workshop hosted by the City of Austin and led by Paul O’Brien, CEO of MediaTech Ventures. During the presentation, Paul took great pains to define his terms. He stated that one of the biggest problems with the early-stage investing ecosystem is that we often use the same terms to mean different things, which creates major confusion for founders everywhere. I couldn’t agree more.
The music industry has a lot in common with Venture Capital.📀
This week, Dani and I drove to Denver (about 14hrs). Naturally, we had to listen to at least 1 long-form business podcast, but our compromise was that she got to pick the episode. So we listened to The Acquired Podcast episode on Taylor Swift, which I highly recommend. Some reasons: record labels take risks on many early-stage artists who are not yet proven and rely on winners to carry their returns, 1% of musicians earn 77% of recorded music income, and record label advances have some similar features to a venture investment (very interesting breakdown from Alex Danco on the term sheet similarities and difference here).
Three things that hiking my first Class 3 14er taught me about business.🏕️
On Sunday, Dani and I hiked Torrey’s Peak, which is a 14,272 ft mountain located about an hour west of Denver. There were a few routes available, but we chose to take the Kelso Ridge route, which is considered a Class 3 difficulty climb. Here are 3 things I learned:
Plan ahead and start early.
We checked the weather the night before, and a storm was projected for early afternoon. So we started our hike at 4:30 am and finished by noon. On our return trip from the peak, we came across dozens of late starters, who apparently did not check the weather. A storm rolled in right as we drove away from the trailhead.
Acknowledge your limits.
It’s a lot harder to breathe at 14,000 ft than it is at 289 (College Station’s elevation). During the strenuous climb, we had to take lots of breaks to catch our breath. Failure to do so could have led to injury or death.
Community inspires.
At the most difficult point of the climb, where we were literally scrambling with our hands and feet on a knife’s edge at 13,000ft+, we ran into another group of climbers. Despite having never met these people before, we all cheered each other on, made jokes, and shared tips as we went. Dani told me afterward “I wasn’t sure if I would be able to make it at first, but meeting those other climbers inspired me, and I knew I could do it.”
Here’s me and Dani towards the end of the knife-edge climb. Photo cred to one of the kind souls we met on the way.
About Me
I cultivate flourishing.
I'm also the CEO of PitchFact, where we help angel networks conduct efficient and collaborative diligence. I'm a proud husband, aspiring father, and grateful friend. My love languages include brisket, bourbon, and espresso.
About PitchFact
PitchFact helps angel networks conduct efficient and collaborative diligence.
Learn more at pitchfact.com.