Ross Baird Crunch Network Contributor
Ross Baird is the founder and executive director of Village Capital.
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I started to realize that Demo Days might be getting stale when an investor at one of our events told me to share the highlights after the pitches were done he would be out in the hallway with a beer. Another time, an investor said he wanted to quit his job and build a startup that goes to pitch events on behalf of other startups. Id make a killing taking a percentage of the prize money! he told me. These things are rigged! Think of a startup pitching for funding. What comes to mind? Its likely the Demo Day. A startup stands onstage, going through slides in front of a packed room, with expert judges onstage ready to give feedback. Maybe theres some prize money. Its an entrepreneurs best shot at getting the funding they need or at least some attention. Except, as we at Village Capital have learned, Demo Days are not the best way to help most entrepreneurs get the funding they need. And in the long run, they are not helpful for investors, or the broader ecosystem in fact, they aggravate blind spots that investors already face. Thats why we made the decision to ditch the Demo Day and why I encourage others to rethink how they support innovation. Not to rain on the paradeThe Demo Day first became popular in the late-2000s when a nascent group of entrepreneur support organizations, most notably Y Combinator, Techstars and 500 Startups, started to run structured programs with batches of startup companies: accelerators. An accelerator typically works with a fixed number of companies over a fixed period of time, usually around three months. At the very end, the accelerator will usually run a Demo Day or Pitch Day. They announce an open-to-the-public, or at least open-to-investors, event. They gather key investors in the room and parade entrepreneurs onstage, with each founder pitching their companys concept with slide decks. Sometimes there is a grand prize for the company selected by a panel of judges. Nearly every entrepreneur support program I know has adopted this format including our own. My firm has run more than 75 Demo Days over the last seven years. Weve held Demo Days in concert halls in southwest Virginia, on college campuses in Miami, in wedding halls in Northern India and in co-working spaces in Accra. Were usually able to draw a crowd, and most everyone has a great time. But over time, weve learned that Demo Days arent actually accomplishing what theyre supposed to: helping entrepreneurs raise money and meetinvestors. When we surveyed our companies and asked them where theymet investors, it was rarely at an actual pitch event.And the format privileges the ones who pitch well, rather than the ones who have the highest potential. Recognizing the habit of pattern recognitionInvestors, facing an onslaught of knowledge, often result to quick heuristics to make decisions. These heuristics can be helpful. From dont take candy from strangers to big animals = dangerous, heuristics have helped us as a society for thousands of years. But as Whartons Laura Huang writes, in a pitch event format, these heuristics may bias against the best entrepreneurs. In her work, Whos the Most Attractive Investment Opportunity of All? Good-looking Men, she found, for example, that among businesses with similar fundamentals and markets, attractive people got funded more than unattractive people, and men were funded more than women. Overall, less than 10 percent of startup investment goes to women and less than 1 percent goes to people of color. And 78 percent goes to founders from three U.S. states.
Huang found that pitch formats exacerbated this bias: The same business pitched with a mans voice got considerably more interest than when it was pitched with a womans voice. For entrepreneurs who dont pitch well or who dont fit investors mental image of a successful entrepreneur Demo Days may hurt more than they help. The preparation teaches entrepreneurs to focus on transactions more than relationships (when, in reality, an in-depth conversation after the pitch matters a lot more than the pitch itself). The Demo Day format is not ideal for investors, either. If youre picking who pitches best, not who runs the best business, youre not getting the best results. You often have to sit and listen to a bunch of companies that dontfit your investment thesis in order to hear a few that do.And if youre caught up in the theater of it, you may not be making the best decisions on who to follow up with after the event. Moving past pitchesSo what can we do instead? The best investments happen because of relationships, not pitches in fact, Ive never seen an investor make an investment decision, ever, as a result of seeing a pitch. We realized that if were going to organize a day-long event with entrepreneurs and investors, and we have limited time and space, were better off creating space for investors to build relationships. We didnt come to this realization alone. Emory University and the Global Accelerator Learning Initiative conducted an independent evaluation of our acceleration programs over the past seven years, and we learned the single activity that had the best results for entrepreneurs was building one-on-one relationships between entrepreneurs and investors.
So instead of Demo Days, we changed the signature activity at the end of programs to something we call Investor Forums in order to provide initial diligence for investors, help startups improve their business and provide anenvironment for investors and startups to get to know each other. First, we invite investors to meet with each company in the cohort for 20 minutes and ask initial questions. Next, we host mock board meetingswith investors and potential strategic partners, in which the entrepreneursdiscuss and receive feedback on one strategic challenge. Finally, we host adinner where the investors and entrepreneurs get to know each otherbetter a form of soft diligence. This process is better for entrepreneurs, becauseit flips the power dynamic: Instead of standing onstage, racing through slides and beingpeppered with hardball questions, the entrepreneur and investor are sittingat the same table, the entrepreneur is leading the meeting and they aretalking through the business as equals. And they get to show skills likecritical thinking, relationship management and the ability to take and deliver on feedback: all more closely related to success than a slide deck. Its better for investors, because instead of sitting in an auditorium, half-bored and half-interested, they can take a deep dive and add value. Ultimately, were seeing this format yield more funds raised for companies: a better outcome for the region. Improving the odds of successIm not saying that entrepreneur support organizations should stop pitch events entirely. We continue to do public events to promote and celebrate startups; entrepreneurship is hard work, and most days are not that fun if youre the CEO of a startup having a community around you watching what you do can be fun. But at these events, the entrepreneurs talk for a minute, rather than five or 10, and dont need to prepare for weeks. When were dealing with our most limited resource and time is always a limited resource we see other ways to be helpful to entrepreneurs and investors. Our mock board solution is just one idea; Ive seen other good ones, ranging from investor office hours to full-group design sessions. Overall, if we want to improve the odds of entrepreneur success, we can innovate not just in the products and services we support, but also how we discover, develop and invest in companies. Getting rid of Demo Days is just one way to start. Source: http://allofbeer.com/why-were-ditching-demo-days/ from https://allofbeer.wordpress.com/2018/04/20/why-were-ditching-demo-days/
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AuthorHi my name is Samantha Roberts I am 23 years old and I just graduated with my BSN degree I love to enjoy going out with friends on my spare time and enjoying the Bachelor life. Archives
April 2019
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