Some entrepreneurs and big-name investors are pushing back against a contentious practice in the world of start-up financing: pay to pitch. Created during the tech boom of the '90s as a way to screen companies, pay to pitch involves charging entrepreneurs fees, ranging into the thousands of dollars, for the chance to present themselves to investors. While a few companies succeed in securing a check, most go home empty-handed.If I were a high quality entrepreneur with a hot idea, I would favor pay-to-pitch. It's a way to signal my quality to potential investors.
Monday, September 13, 2010
Paying to Pitch
If you are an investor in early stage companies and you want to weed out pitches of lower quality opportunities versus higher quality, how might you go about it? Here's one idea: charge a fee for listening to the pitch.
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This is an interesting concept. Vulture Capitalists have it hard. It is a tough life to listen to interesting proposals all day and occasionally have to write a check off of other people's money. I can see how they would want to charge for such a miserable experience. Most entrepreneurs have tapped all available resources just to get to the stage where the idea is "pitchable". If I were an investor, I would choose those entrepreneurs who were wise enough NOT to choose to pay-to-pitch. That would signal to me that the management knows where to properly allocate capital. Those who have great business ideas typically do not have a large pocket book. I do not see a correlation between winning ideas and the ability to pay-to-pitch. In fact I would suspect that the two are negatively correlated.ReplyDelete