A version of this article previously appeared in Forbes.
It happens during nearly every fundraising pitch meeting. The entrepreneur cannot wait to show me their product via a demo. As politely as I can, I dissuade them and explain that there are other ways I prefer to spend our precious time together.
Most entrepreneurs seem confused by my reaction and often say something like: “VCs love demos. You’re the first one I’ve met who didn’t want to see our product.” I then explain that I evaluate the veracity of a product by seeking guidance from current, past and prospective users, rather than relying on a product demonstration.
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Note: I invest almost exclusively in b-to-b software companies. My “no demo” approach is clearly not appropriate when assessing the veracity of investments with a hardware component or with a consumer facing product.
Don’t Demo Me Bro
Assessing an entrepreneur’s influence and persuasion skills is important, but I can do this by observing their fundraising pitch rather than listening to a well-rehearsed product overview.
There are six reasons I’d rather not spend my limited time with a company’s Founder(s) sitting passively through a demonstration.
1. Monologue – Although it is possible to interrupt a Founder’s speal with questions, demos tend to be one-way discussions. When investors do interject, demos typically become even more pedantic, as Founders feel compelled to speak expansively about specific features in an attempt address the investor’s concerns.
2. Comfort – Demos allow Founders to slip into a formulated script, which is seldom revealing. My goal isn’t necessarily to make a Founder uncomfortable during a pitch meeting, but the experience is typically more rewarding and informative for all parties when we have a give-and-take conversation.
3. Fool A Fool – I sold surgical robots from PowerPoint slides in the early 1990’s, before the robots existed. We weren’t trying to fool anyone (we disclosed that we needed prepaid orders to build the robots), but we certainly were selling a vision. I also pitched an expert marketplace to some of the world’s largest ISPs as a support tool, nine-months before the product was optimized for that purpose.
As such, I understand the degree to which hand waving and vaporware can influence investors and potential customers. Demos inherently encourage such hand waving, blurring the line between which features are available today and which are still on the product roadmap.
4. GUI Fever – Entrepreneurs are often justifiably proud of their clever, clean user interfaces. However, I am indifferent.
An interface that is engaging can fool customers into trying a sub-par product. In contrast, an ugly interface may not show well in a demo and could turn off a potential investor. However, if a product with a mediocre GUI is consistently adopted by customers, it may signal a lucrative investment opportunity.
5. Sales Mode – Demos intrinsically cause Founders to launch into sales mode. Rather than be sold, I’d much prefer to understand a product’s value proposition and the extent to which it has achieved fit among the company’s target market customers. Such understanding is more difficult to achieve when you are forced to parse through a scripted monologue.
6. Regular Salesperson – Founders can obviate product weaknesses via their force of will and passion. Thus, in the occasional instances when I do sit through demos, I prefer they be conducted by a rank-and-file salesperson. This approach provides me with a view that is more representative of how a typical customer is introduced to the company’s value proposition.
Customers Are All That Matter
At Rincon Venture Partners, our approach to diligence isn't the old-school methodology of forcing entrepreneurs to deal with an expensive expert who spends weeks performing a largely academic exercise of assessing the company's tech stack and code, all the while asking irrelevant questions intended to assure the investors that she is truly an expert and that they are getting their money's worth.
In contrast, we value entrepreneurs' time and thus our diligence generally includes introducing them to potential customers and partners. Our approach, which is certainly not unique, often results in sales, partnerships and otherwise productive relationships. In turn, we receive unfiltered, frank feedback regarding the company’s product, team and value prop.
Entrepreneurs often suggest customer references that arose from a highly curated introduction or prior relationship. These conversations are helpful, but we attribute more value to discussions with customers who came upon the company’s product on their own. Because of this reality, we also seek references from customers that have an arms-length, dispassionate relationship with the company. Such customers tend to provide more frank and objective feedback that is infinitely more helpful than the slickest product demo.
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