As with all “movements” in Silicon Valley, industry insiders have been leading the long march to Clubhouse — an exclusive, new, audio-only community app. And as with everything in Silicon Valley, it didn’t take much time for venture capitalists and entrepreneurs to start using Clubhouse for fundraising pitches.
I have a simple entreaty for you: don’t — at least not yet. And here’s why.
Getting to No
The biggest warning sign in any fundraising process is when qualified investors start saying No. Venture Capitalists are pack animals, always looking for their next kill. But they don’t like peeling away too far from the group, lest they be murdered in a bad deal. This means that most seek validation from other VCs before making a significant investment.
The more VCs who say no to you, the more are likely to say no. The reason is that as investors talk to each other about your startup, they will begin to “pattern match” that other investors are not interested. This ends up becoming the classic Empty Bar Problem, where people avoid choices that appear to be undesirable, creating a downward spiral. Another way to think of it is the Bandwagon Effect or Herd Instinct Effect — where we seek social proof in the actions of others.
Most VCs will talk a good game about making investments against the market grain — positioning themselves as rebels with a unique eye for value. Folklore also hypes the idea that many startup founders were often turned down for funding, but succeeded through perseverance. Of course, both of the above are sometimes true, but in the main they are not. This leads founders to the false sense that they need to keep pitching rather than the true lesson, which is that they need to be listening.
In sales, you learn to Always Be Closing. But when you’re raising funds, you need the money to come to you in order to be successful. You must create an auction energy where investors feel lucky to be in your deal. Once naive founders recognize this pattern, they often respond by padding their track records or customer successes. This too is an incorrect strategy for success.
The minimum requirements for entrepreneurs to “Get to Yes” in early stage venture are:
- Pitching to the right, qualified, warm investor leads
- A good idea, team, execution and timing
- A bulletproof pitch that clearly brings 1 & 2 together
Unless you can confidently say you’re at 80% on all 3 of these requirements, you shouldn’t pitch your company — no matter how tempting.
In practical terms this means that you have to have given your pitch at least 5–7 times to people who know how to raise money before you go out on investor pitches. And if you start getting Nos, you need to regroup with trusted advisors and potentially pivot. This is the “meat” of what you get from most accelerator programs, but is not fungible for those going it alone.
Back to the 90s
Pitching remotely is a different skill set from pitching to a live room of investors. Founders who started companies prior to 2005-ish have extensive telephone pitching skills. For a while in the late 90s/early 2000s, when I was fundraising for my successful startup Trymedia, you had to do a phone pitch prior to getting an in-person investor meeting. Selling your idea on the phone was then an essential skill.
Selling over the phone is tougher than selling in person because you cannot “read the room” and see how people are responding to you via body language, tone and multitasking. As I argue in my forthcoming book, The A-Ha! Method: Professional Speaking in a Time of Distraction, Zoom meetings are more like phone calls than in-person events. This is because it’s hard to see people’s facial expressions (especially if you’re sharing your screen), hard to hear their verbal cues/questions, and they multitask like crazy because it’s “hard” for you to notice. Honestly, it’s just like speaking to a blank wall.
That’s why I recommend that all the students in my new speaking and pitching course practice their talks by actually giving them to a wall (or asynchronously via video). Seriously. The cold, unblinking eye of your webcam — and tiny Zoom avatars — are not much different.
There are many other reasons phone pitches are harder, for example the fact that no one really likes a hard assumptive close over the phone. Think about the final line in most Shark Tank pitches, usually something like “Ok Sharks who’s ready to invest?” How does it feel when a salesperson tries to close like that over the phone. Oy.
But also, people tend to lose their place without visual references. Clubhouse has all of these issues — and more. If you’re not a very experienced pitcher, you need to practice extensively — even more than for a live event. Think of it like the difference between running the 500m dash and doing hurdles. They are basically the same skill, but one path has additional obstacles requiring unique training. Audio-only pitches are like running the hurdles — something you probably can do, but without significant, specific practice, likely won’t do well.
Look at me using a sports metaphor! My mom would be so proud!
Sharing Your Information
One of the dirty secrets in venture capital is that VCs often share proprietary information about entrepreneurs that pitched them with existing, competitive portfolio companies. I have been the recipient of this largesse on multiple occasions, and its victim more often than I can possibly imagine. The point is, investors won’t sign NDAs and will not guarantee that what you say will be kept strictly confidential.
In general, when you’re doing an early stage startup, keeping your ideas secret isn’t a good strategy. You need to share what you’re working on with many people to get the feedback necessary to be successful in fundraising and early execution. However, if your people, process or technology are highly unique, you don’t want to spread the details any wider than absolutely necessary.
Pitching publicly, therefore, may require that you’re a bit further along in your process. Clubhouse is invitation-only, but effectively public. That means that you cannot fully know who is listening to your pitch, and even if the people asking questions are precisely who they say they are. Moreover, it removes any ethical restrictions on prospective investors — however insignificant — to sharing your info because, after all, you made it public yourself.
This should not prevent you from pitching publicly — as on Clubhouse — but again, it means that you have to treat it like an advanced challenge, and be sure that you’re 100% ready. Get coaching, practice and make sure you have some true momentum.
Novice entrepreneurs are often shocked by the lack of concrete and detailed feedback from investors. They expect every VC to speak like a character in Silicon Valley, and are taken aback when their pitch is dismissed with a “we don’t believe the potential is as big as you do,” or “this isn’t an area we’re passionate about right now.”
While those are perfectly valid “it’s not you it’s me” reasons for a breakup, they are woefully insufficient when you’re a startup founder trying to get feedback and improve. This is one of the biggest values that founders receive in an accelerator setting or when they work with a coach.
Therefore, before you go pitching to venture capitalists in general — and more so when in a public forum — you need to make sure your ideas, story, delivery and answers are as polished and bulletproof as possible. And yes, many first time founders have raised money off the back of appearances at Disrupt or other startup competitions, but I can assure you that each of those founders received extensive coaching and support prior to the event. This is often subsidized by the organizer, so unless Clubhouse starts giving out speaker training, you might want to do this legwork yourself.
Pitching your company without visual references, at a distance, in public and absent significant feedback is exceptionally difficult. It’s hard enough to fundraise as a first time or aspiring founder, but Clubhouse and other remote settings only make it more challenging. Treat it like the advanced challenge it is, and beef up your skills through additional training, coaching and feedback that is optimized for the future of remote communication.
Then, perhaps, your startup can be the next Clubhouse.