Over the last year I have witnessed several investor pitches and startup "pitch contests", in locations across the United States. If you're not familiar with investment pitches and contests, think "Shark Tank" but with specific industry experts and/or investors asking the questions.
Having given many pitches myself I know that it is very important to sell the vision for your company, capabilities and the potential return on investment.
Vision, reality, fact and fiction
However, I have noted over the last year that selling a vision while telling the truth can be difficult for some entrepreneurs. Whether through being naive, overly optimistic, or just flat out deceitful, some entrepreneurs can get lost in their desire for success.
Very often a pitch may leave out the science in an early-stage life science company, or the technology in a tech startup. I have watched entrepreneurs pitch technologies that defy physics and other laws of science. The entrepreneur was selling the vision as reality when it obviously was not.
Sadly, investors or contest judges can sometimes be caught up in the entrepreneur's hype. Instead of calling them out on the issues they notice, they encourage the fantasy.
When facts got in the way
An entrepreneur doesn't have to look far to see the future if he or she is selling an illusion.
The unicorn life science startup Theranos had incredible investment, hundreds of millions of dollars. The investments pinned the company with a $9 billion valuation, and made their young CEO a celebrity billionaire. They had massive business growth from selling what we now understand was a product that did not work.
At some point an employee put the hype and reality together, noted the fiction, and then reported it to the government and the Wall Street Journal. The downfall of this unicorn was witnessed around the world. Lawsuits resulted and investors were left clawing to recover something of value while.
This leads to a big question: why?
Why would people that I am sure are generally good and honest stoop to the level of publicly espousing falsehoods to win a competition, or gain investor funds?
In many cases I think that it is because they either just believe in their dream a bit too much and are wearing blinders to the facts, or they are naive to the tangibility of their vision. Either one is a situation screaming for a reality check. Investors or judges should do just that.
But the bigger issue might be an attitude that it doesn't matter. That it's okay to fudge the facts if it means getting ahead personally and being a business celebrity.
Investors should always ask the hard questions
Investors often say they bet on the jockey and not the horse. Well, you can have a Ryan Moore as your jockey, but if he is riding a child's hobbyhorse he will not win the race. If you are promoting fiction in a startup, you will not win. In time reality meets the street.
The entrepreneur is vitally important in any startup; however, the technology being presented must have some semblance to reality. If it's not there yet - disclosure is a must.
It is ultimately the responsibility of the investor to separate the fact from fiction. However, according to a few startup news stories of the last couple years, this was sometimes more the exception than the rule. Many people have lost a lot of money they should not have, and in the case of Theranos, patients were put at risk.
Stop the madness
It's time we look at the television pitch shows as what they are, entertainment. The investment pitch needs to be brought back to less of a show and more an exchange of information. When we get away from the game show style investment pitches we see too often today, the investor and entrepreneur will both win.