Unpitchable

Last spring a team and I pitched a proto-Linkspank three times in a business plan competition at Chicago GSB. We pitched once with a written business plan, and twice in a class setting with VCs and entrepreneurs. Since then I have pitched two other social networking ideas in classes and competitions.

What has a little startup learned about VCs from these experiences?

VCs prefer to invest in a business that they can defend like a geometric proof - i.e., with no room for argument. They have little choice - they are in a betting game and need to minimize failure. But lots of businesses can (or could) succeed despite the fact that they aren't "geometric proofs." These businesses will usually be overlooked by VCs. (Much of the time, VCs imply that the business is messed up or not a mature idea, while in reality they won't invest just because of the type of business it is.)

The ideas that I like - Internet sites that connect people - tend to fall into this category: unpitchable. Since network effects are in play (customers breeding customers), any error that you make in predicting customers is magnified.

Because of the type of business, you essentially are getting up there and saying, "either we'll be big or nothing." You can have the best financial analyses and forecasts of the day but because of your type of business, you will be accused of playing with numbers. Worse, you may be accused of being arrogant and delusional enough to think you can be the next MySpace, even if you recognize that it's big or nothing.

The problem isn't because of the Internet bubble (the first one or the current one), or because the Internet is "new" or extra "fad"-like or because the people who use these sites are trendy. The problem is when your model involves building a network - like a social networking site, although there are and could be other kinds. As I mentioned, this kind of business is especially difficult to predict, since it will be either big or nothing and the difference between those outcomes can hang on small factors (a bit like chaos theory).

So, these businesses are tough to predict in EXACTLY the respect that VCs are trying to minimize at all costs.

We are the anti-VC company!

Unpitchable.