Backstage Capital Spotlights Underestimated Founders at Coast-to-Coast Investor Days

Nov. 5, 2018

BY TARA MATAMOROS CARTER

   

When I started the Investor Day program with Backstage Capital, which debuted in Los Angeles early this year before expanding to San Francisco and New York City, Arlan Hamilton had some simple guidance for me: “Let’s talk about real deals.”

That became our mantra and the primary goal of the framework we designed to optimally schedule productive meetings between energetic founders and the investors who most wanted to talk to them.

We tested each component against this KPI: What will give both sides a better shot at closing a deal in the days to follow? It turned out better than we hoped and some deals were closed shortly after the event, sometimes after months of miscues.

Here’s how we developed a smarter approach to solving the problem and what’s coming next.

Do the Opposite

Fortunately, there have been plenty of examples for us to see what NOT to do at investor/founder demo days. For investors, it can be a big waste of time – time they can’t afford to waste – to sit through presentations of startups that don’t align with their values. For example, recently I pointed out on Twitter an excerpt from colleague Chacho Valdez’s recent interview: “When companies don’t have women on their team they’re at a disadvantage & as an investor, it’s a red flag....Company culture forms early...The precedent that women aren’t important will perpetuate with every woman they don’t hire.”

It’s really a matter of bottom line performance as well, as there is ample evidence that female founders made double the revenue of male counterparts, even though they have received far less funding.

A related problem with these big events is that there is usually no good way for investors to ask questions that matter to founder teams in a private setting. Often the startup founders are just presenting from rote memory of pitch decks that the investors may have already seen, implying they the founders haven’t really learned anything since the deck was created.

These events are just as frustrating for founders, who often pay thousands of dollars to bring the necessary team to present at the event, at a time when every dollar counts.

Gil Dibner at Angular Ventures summed up many of the problems from the founder perspective in his blog “Demo Day? Don’t,”including the fact that they expose founders to the risk of being perceived as a failure (why would a brilliant startup have to go to a demo day?) and they create a false sense of relationships that don’t exist. Founders live on hope and tend to hear what they want to hear from investors who find it easier to avoid conflict with blandly positive observations.

The Unique Needs of Underestimated Founders

In addition to all these endemic issues, there is no guarantee for founders that anyone will really hear what’s great about the business. For underestimated founders, it can be especially painful to get lost again in all the noise of a flashy event, after enduring so many hardships just to get there. They need to be heard in a different kind of environment where they are not outshouted and outspent by those who already have easier access to investor funding.

The end game matters and every investor has a different agenda. Arlan explained to Quartz, “I look for founders that remind me of myself. Would they have done what I did to get here?…I’ve always been inspired by a rap lyric that says ‘I came for the cake, not the crumbs,'” Her preference is to invest in founders who are solving personal pain points and committed to the company, not looking for an exit so they can move on to the next one – founders “who want to endure the endless thrills and disappointments, financial spikes and blows necessary to build their dream.”

Not all investors feel that way, but what matters is that the investor syncs up their goals and expectations with the founder, and that can only happen in a tough, thorough one-on-one. There’s not time to do that for every founder that comes along, so our Investor Day events introduce founders to investors online, then allow them to choose who they want to talk to.

A Better Way to Get Deals Done

After seeing the struggles endured by both founders and investors in our own experience, I realized that it made much more sense to organize, oversee and carry out our own Investor-focused event that highlighted the strengths of our Headliners (ie our portfolio companies). Our Investor Day events were dedicated to balancing aspirations with expectations.

First of all, we made it clear that our events would enlist only investors who had an open mindset for working with underestimated talent. I set up a framework that allowed investors to choose which founders they wanted to talk to and allowed founders to specify who they wanted to pitch.

Prior to the event, investors would get the chance to learn about and select up to 4 meetings with promising founders. At the same time, Headliners would get to select 4 meetings or more to fill their schedules. One of the earliest decisions Arlan made on the design side was that “double dipping” would be permitted and could prove extremely valuable.

A full schedule for the Investor Day event could result in 8 meetings for the Headliner. For those Headliners who were in the greatest demand, accommodations would be made for them to book additional morning and mid-day meetings, resulting in potentially up to 12 meetings per event. That’s exactly what happened at our NYC Investor Day, where we ended up having one Headliner with their eight regular meetings, but then also added two more in the morning and another two during lunch! That gave the founders the chance to have more meaningful investor interactions in a single day than they were able to do over three months on their own.

In addition to giving both investors and founders more of what they wanted from this type of event, I also suggested meetings to both parties when I was able to see some alignment in goals that they had missed. Whenever possible, I suggested these meetings during break times. The point of it all was to sync up needs with resources intelligently and make the maximum number of deals happen.

We were extremely please with the results of our matching process and are considering enhancements for augmenting the suggested meeting process with AI for our 2019 Investor Day events.

What Really Matters in the End

Post-event, we reviewed the interactions between founders and investors to get a sense of what founders nailed and what other information investors would like to see emphasized in the next iteration. Many of those conclusions will be shared my upcoming blog, The 9 Things Investors Want to Hear from Investors.

From our point of view, our Investor Day events are successful only if they make it easier for founders to meet and talk candidly with investors who care about bringing their ideas to life, which is as far as possible from the superficial, mechanized interactions and speed-dating atmosphere of a typical demo day.

We’re proud of the practical framework we’ve built to see more human connections made and more deals done in a compact time. Our headliners have told us that our Investor Days allowed them time to meet with more engaged investors in 8 hours than they could in 3 months on their own. Some of the other comments include “best investor day/demo day that I’ve ever attended,” which took may varied forms, and our favorite: “Better than TechCrunch.”

Our Investor Days are unique also in that fact that our investor community is largely aware, through Backstage Capital’s investment thesis, of the need to be sensitive to how their words and actions are perceived by founders who have been repeatedly underestimated.

Regardless of how disruptive their ideas are, underestimated founders often need more initial support than peers who may have garnered more entrepreneurial knowledge through paid programs, community support, personal contacts in the investment field, etc. This does not mean their ideas are "less than" - it just means Investors need to supply support in different ways to empower founders and lay the groundwork for a new way of evaluating startups.

BY TARA MATAMOROS CARTER
STARTUPS, FUNDING, BACKSTAGE CAPITAL, INVESTORS, FOUNDERS