Startup CDOs Need to Talk the Walk

Digital startups are fun, exciting, and creative — and most of them fail.

The statistics vary, but the odds are stacked pretty overwhelmingly against success. For every unicorn, there are probably several hundred failures.

Given that the number of startups increased significantly in many countries during COVID-19, the number of failures is likely to multiply.

In the U.S., for example, the number of business startups grew 24% to 4.4 million from 2019 to 2020 as people stayed home, had time on their hands, and put their minds to that genius idea they’d been thinking of developing for years

According to CBInsights, around 70% of startup tech companies fail, usually around 20 months after first raising financing.

After quoting this, perhaps depressing statistic, CBInsights cites a famous quote from Thomas Edison just to keep the discouraged entrepreneur interested: “I have learned fifty thousand ways it cannot be done, and therefore I am fifty thousand times nearer the final successful experiment.”

Your pitch matters as much

Dedication and a killer idea, however, are only two ingredients that go into a successful startup. A significant determinant of success or failure lies in the pitch.

The odds are stacked against the startup here too. According to Gartner, 95% of investor pitch decks will fail to propel the startup through to the next round.

That is because many of them are too long and do not define their target market well enough. Nor do these pitch decks nail the differentiation of the idea, which is crucial. If an investor is looking at dozens of investment pitches, the successful ones simply have to have something different to stand out.

Also, many people create presentations based on the fact that they will be speaking to them – as if they are an adjunct to their in-person pitch.

The reality is that many people will be looking at the presentation as a standalone document. Therefore, it has to be easily read and understood without the benefit of the creator’s explanation.

They estimate that after only 12 slides of a presentation, a potential backer will already have made up their mind, a little like hearing the first few bars of a pop song to decide if you like it. 

Gartner addressed the funding challenge for startups in a recent paper entitled ‘How Tech CEOs can best secure opportunities to pitch when raising seed capital.’

There are three main conclusions drawn:

• Tech CEOs raising seed financing have many meetings with angel syndicates that go nowhere because they fail to understand the role of champions and influencers.
• Tech CEOs are rarely allowed to present to investor groups because they fail to understand the prescreen process and gatekeeper role.
• Seed Investors find it difficult to trust and invest in tech CEOs they do not know.

Advice for digital startups

So, how to overcome these challenges? Gartner’s advice also comes in three’s:

• Pass gatekeeper prescreening and get invited to present the investment opportunity by identifying the investor group prescreening criteria and delivering high-quality, professional pitches.
• Build credibility within the investor group by identifying a champion for each investment club, group, syndicate, or firm.
• Secure warm introductions to investor groups by leveraging your network of lawyers, accountants, advisors, bankers, CEOs, and entrepreneurs to make a personal connection with the investors.

All of this points to the value of old-fashioned networking and the benefits of having historical connections with people who have confidence not just in the idea but who are pitching it.

Gartner also quoted some data on why startups fail to get funding once they progress to the next stage.

Based on a survey of angel investors, the number one reason is that the product or business model doesn’t quite make the cut, cited by 39% of respondents.

Beyond that, 37% said it was because of the nature of the market. It was either too crowded for the idea to get traction or was too small to justify the investment.

The other two reasons were the 14% who nominated financials, such as over-enthusiastic valuations and the 10% who said it was because the pitching team was too inexperienced or incomplete in its combination of skills.

Get your idea audited

One way to get noticed is to have an analyst do a report on a startup. But at the cost of around USD 40,000 or so to the likes of Forrester or Gartner, many startups shy away from this. For some, that is the seed capital they might be seeking.

The alternative, however, is often oblivion. While many startups balk at analysts' cost, paying for a report does indicate a substantial degree of commitment and can sometimes make up for a thin network and a lack of connections.

All of which is worth considering for those entrepreneurs out there whose COVID-19 hatched ideas are now maturing. They are being prepared for pitching to angel investors and venture capital.

Startups are the lifeblood of innovation for the technology industry and are essential to a culture of innovation and aspiration.

It’s human nature to strive and create, but almost to fail. Just don’t get hung up on it and be prepared to go again — a bit like Thomas Edison.

Lachlan Colquhoun is the Australia and New Zealand correspondent for CDOTrends and DigitalWorkforceTrends, and the editor of NextGen Connectivity. His fascination is with how businesses are reinventing themselves through digital technology and collaborate with others to become completely new organizations. You can reach him at [email protected].

Image credit: iStockphoto/Tomwang112