One of the hot topics among entrepreneurs and venture capitalists over the last few months has been the emerging "pay to pitch" trend across the industry.  I thought I'd take the emotion out of the debate insofar as it is necessary & approach this issue from a purely economic standpoint.

I personally think this whole thing really sucks for entrepreneurs — startup folks spend a lot of time/resources and sometimes money preparing for a pitch, rehearsing it, and delivering it enough times for it to rock.  That's a barrier to entry in and of itself — and a lot of people who aren't entrepreneurs either don't realize it or don't care.  That's fine.  But I only disclose my feelings on the matter to get that part of this blog post out of the way… I'm more interested in sharing my critical view on the matter opinions aside.

The "scarcity of time" issue I just mentioned similarly applies to investors.  They have a finite amount of time to devote to their endeavors, working with portfolio companies, learning about industries/markets, selling their fund to institutional and accredited investors, etc.  They are very busy people generally speaking — and just like investors don't really understand what it takes to prepare for a pitch, respond to due diligence, etc.; entrepreneurs don't understand "a day in the life of the investor."

Add another issue at play here as well — entrepreneur myopia.  Entrepreneurs tend to think of themselves and their deals as far better and less risky than they really are.  We all suffer from that from time to time — NOBODY is immune.  It takes a certain amount of ego to get into this business, and a certain amount of unbridled confidence in the face of uncertainty.

In a pure economic sense, pay to pitch is a harsh yet viable means for investors to segment the market & weed out a lot of folks.  If you aren't serious enough or financially viable enough to spend $400 on a pitch that may give you face time with serious, qualified, A-list investors, then maybe you shouldn't.  It isn't a perfect system, but by and large I'd bet that it does help "pre-qualify" more interesting deals… so it's probably a popular thing for investors because it reduces the amount of time spent on the less sophisticated set of entrepreneurs.  And if an investor misses a good deal here or there but has to do a lot less work to see the good deals, so be it.

Now it all begs the question — how much of an investor's time should be spent sourcing new deals… proactively finding entrepreneurs with great deals… etc.  This is where the whole pay to play doesn't work in my mind.  I would love investors to (on some level) be rewarded for their hustle just like I am as an entrepreneur.  But that's not always how the world works.  VCs differentiate themselves based on a wide range of criteria, and hustle may be 4th or 5th on that list.

Pay to pitch also does not work for me when groups solicit entrepreneurs for huge pitch fees.  Take for example, Alexander Muse's experience where he worked with a group that initially tried to gauge his interest to pitch.  They dangled a carrot… then finally asked for an exorbitant fee for the "privilege" to pitch.  That's flat out wrong in my opinion.  If you're going to set up an event & charge money for access, at least be up front about what you are doing.

OK… that's my two cents on this matter.  Back to work.