It seems as if I get an invitation to join an accelerator Demo Day on a weekly basis these days, but I hardly ever attend them. It’s expensive and time consuming to travel and seeing a company’s five minute pitch doesn’t really tell me much more than I could learn by reading their executive summary in my pajamas. Last week however, I did attend the Unreasonable Institute Investor Dayz and was blown away. I learned more in the three days I spent there, than I’ve learned in the last three months, and I think it was incredibly valuable for both the entrepreneurs and the investors. Here’s why:
- The Entrepreneurs Asked the Questions. Instead of the typical pitch and pry model, the entrepreneurs gave short pitches and the investors were asked to be “board members for the day” for four of their top company choices. Each entrepreneur met with 5-10 investors at a time, presented their company challenges and asked the investors to help address those challenges. This accomplished four things: 1) the investors added value to the entrepreneur, 2) the entrepreneurs let their guard down and revealed the real challenges of their business and 3) the investors and entrepreneurs had the opportunity to see what it would really be like to work with each other. Brilliant.
- We Spent Quality Time Together (3 Whole Days!). The typical demo day never offers enough time for entrepreneurs and investors to really get to know each other, which typically leads to a completely inefficient game of phone tag. Because we had three full days together, we accomplished more than we would in three months of our normal busy lives.
- The Investors Communicated With Each Other. Contrary to the belief that investors want to be alone together so they can collude better deal terms, coordinated investor communication is incredibly beneficial to entrepreneurs. Not only do entrepreneurs save time by not answering the same question twice (or 100 times), but most investors will often wait to make a commitment until they see who else is interested. The bandwagon effect is incredibly powerful, but more importantly, investors know that if the entrepreneur can’t fill the entire round, their money will essentially go to waste. Understanding other investors’ interest makes deals move much more quickly, and brings me to my next point:
- Open and Honest Investor Communication. In addition to spending two days together, the investors met in a closed session to simply state which deals they were interested in and to share contact info. Instead of having to make twenty phone calls, I knew, within instants, which investors were interested and what kind of value they could offer. Again, brilliant.
- We Made Actual Commitments – Financial AND Non-Financial. My aforementioned distaste for demo days also stems from the fact that investors go all rah! rah! when they are caught up in the excitement of the moment. They exchange cards, promise to follow-up “ASAP” and then……. fall off the edge of the earth to never be heard from again. Everyone is busy in their day to day lives and when investors come home and remember that, the balls start to drop. By actually encouraging everyone to record their financial AND non-financial commitments in a public forum, there was at least an attempt to achieve accountability.
- Rapid Prototyping and Continuous Communication. The agenda that transpired was completely different than what was planned, and that was a good thing. There were continuous opportunities to talk about what worked and what didn’t, and improvements were made accordingly.
And lots of other cool stuff happened too, but….how could the event have been even better? Well, two things:
- A Similar Event With Local Investors Two Weeks Prior: The event drew some pretty amazing investors who offered valuable feedback, but unfortunately, the entrepreneurs didn’t have time to incorporate their feedback. For example, one amazing company, EcoPost, was raising capital to purchase a pretty pricey machine to ramp up production. Her investor “board members” came up with the idea of leasing vs. buying and were very interested in this less capital intensive option. Unfortunately however, there wasn’t enough time to prepare the details to strike while the investors were hot. I think this could be addressed by bringing in a small group of local, friendly investors as “board members” two weeks prior, so the entrepreneurs are more investor ready for the out-of-towners.
- More Opportunities for Formal Investor Communication. In my opinion, the most powerful outcome of this event was the network of investors it facilitated. Entrepreneurs and investors spend way too much time looking under every rock to find each other, and if we really want to increase access to capital, investors have to know who they can work with. By providing a forum (which doesn’t necessarily have to be investor only by the way) for investors to share what they are interested in and how other investors can help them, we can stop making private equity such a needle in a haystack.
So there you have it. Will I start getting out of my pajamas and going to more demo days? If you hold one like the Unreasonable Institute, I will.
What do you think? Please comment.