Asking strangers for money to help make an idea happen is difficult, strange and dangerous. Above all, the exchange demands that presenter and audience know why they are there together. But that is not always the case. “Pitching” is not exactly like, say, selling a house or a car, where the buyer (i.e., investor) ends up with a physical object they can use or inhabit. Nor is it quite like proposing a standard financial asset like, say an index fund or IRA, where presenter and investor agree on clear, rigorous and regulated success criteria. No, the “pitch” for a tech entrepreneur is closer to a politician asking for a vote (and/or money) or a scientist asking for research funding, with all the attendant unknowns.
The politician, scientist and entrepreneur commit to do their best to use the investor’s money to eventually achieve something like what was proposed – or better – when presenter and investor first came together, all things considered of course. The result can be radically new legislation, a cure for cancer or a new autonomous taxi service. All these outcomes have an implicit meaning embedded within that can come as a shock to first-time entrepreneurs and investors, which is effectively expressed by former U.S. Secretary of Defense Donald Rumsfeld:
“There are known knowns. There are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know. But there are also unknown unknowns – the ones we don’t know we don’t know. … it is the latter category that tend to be the difficult ones.”
Politicians, scientists and entrepreneurs use Other People’s Money (OPM), in addition to their own, as an accepted part of the great game of Doing Big, Hard Things (DBHTs). Yet using OPM for DBHT requires a whole lot of learning. But admitting so up-front is just not done, which is one reason self-aware, intellectually honest politicians, scientists or entrepreneurs know pitching, as commonly practiced, has a strong strain of artificiality.
“Many a man thinks he is buying pleasure, when he is really selling himself to it.”
The classic 20-minute investor pitch, wherein entrepreneur, PowerPoint and investor come together, can be: (1) a clash of powerful egos where no useful information is shared, but all parties retain their (fragile) sense of self, (2) the supplicant (i.e., the pitcher) tries to entice the money (investor) with promises of vast, relatively easy riches or (3) an egoless, discerning mutual exploration where entrepreneur and investor map their respective known knowns and known unknowns, while also acknowledging that there are things that just can’t be known, at least in that moment anyway.
Scenario (3) can take an hour or a month, but both parties will be better for it. At the very least, they can agree to disagree and come away smarter and more informed about the world. Or, alternatively, they can stick with a tired script and take their chances accordingly.
There is one view where entrepreneurs are “selling” their concept to investors. In this mode, the pitcher tries to convince a usually jaded and skeptical investor with data, opinion and experience. With this approach, the investor needs clear proof there is money to be had. To be sure, there are plenty of such investors and some do very well. However, these types of exchanges too often take on the stilted and artificial character of a televised presidential debate or, worse, any episode of “Shark Tank.”
A different view of a pitch is more like a date, where (ideally) two curious and discerning parties thoughtfully, constructively and even playfully try to determine if the person in front of them has the qualities, interests, values, beliefs and goals that they too have, admire and/or seek. A “no” in this exchange is not necessarily a rejection of the person or the quality of their idea. Rather, it is just not a good match, period.
An entrepreneur’s most precious resource is time. Capital, colleagues working at a high tempo, customer patience with a klunky product and lack of competition all have a short half-life. Asking for money can be a burden or an opportunity. It is up to the entrepreneur and investor to determine which it will be.