While the first pitch to investors is concerned primarily with issues of 'starting' and 'financing', these second presentations appear primarily to be about the processes of 'scaling-up' and 'credentialing'. There is anecdotal evidence that those ventures endorsed by these important market actors receive a significant boost and, conversely, where this form of backing is not forthcoming, it becomes a block or impediment to progress. We term this hurdle the 'second most important pitch'.
Why this 2nd pitch matters
Pitching to analysts is a crucial step in the early life of a digital venture, particularly when they attempt to scale. It is the critical practice in fiercely competitive technology markets where attention gets funnelled to some enterprises and away from others. Whether or not a venture will grow can depend upon how well it overcomes this hurdle. The UK, for instance, is recognised as among the most vibrant places in the world for the creation of digital start-ups. However, its new enterprises are often unable to take the next important step.
According to Nesta (2016, 11), “[t]oo many start-ups start, but never scale”. Analyst pitches are key to these processes of scaling, but little is known about them. The Scaleup Institute (2014) highlights six factors that hinder the development process of ventures, but there is no mention of this second pitch. Since industry analyst outputs are widely read by technology adopters and investors, those pitching to these actors receive not only increased attention but essential forms of ‘credentialing’.
We will analyse the 'pitches' made by new digital ventures to analyst firms and investigate how the analysts subsequently assess the venture's viability and potential as compared to other players. While much has been written about the first equity pitch a start-up will make to an investor, little is known about how ventures make these second important pitches to analysts to win their endorsement. We theorise the second pitch as an integral part of an 'endorsement economy' that has developed within the digital and broader information technology sector.
Why has the 2nd pitch become important?
It is only in recent years that industry analysts have systematically turned their attention to start-ups. Typically, they paid attention only to larger vendors. However, with the accelerating pace of digital innovation, given added impetus by the appearance of lightweight technologies such as ‘apps’, important technological developments now come to prominence quickly and outside the large vendor labs. For instance, the leading analyst firm Gartner has a category for potentially transformative start-ups labelled Cool Vendors and those designated as such are said to benefit from increased ‘visibility’, ‘sales enquiries’, and ‘investment’. HfS and Aragon Research have similar 'hot vendor' designations'.
Another important new development is the proliferation of specialist analyst services sold to equity investors (the IDC Private Vendor Watch Service, the 451 KnowledgeBase, Ovum’s Investment Tracker). Thus, as the barriers to digital innovation continue to come down, we expect further changes to the evaluative infrastructures underpinning the start-up community, where the enterprises connecting with analysts are boosted and those failing to do so are put at a disadvantage.
What is the endorsement economy?
To analyse these pitches we draw on the emerging specialism of 'Valuation Studies' (which is the application to market situations of analytical techniques borrowed from Science and Technology Studies, Sociology of Finance, and Economic Sociology). We will extend this current work through conceptualising these pitches as part of an 'endorsement economy'. This idea captures not only that market actors provide assurances about the viability or value of a venture, but how/whether they play a key role in helping to realise that value through 'championing' a venture.
What will we do in this study?
Using a qualitative methodology, we will directly observe how digital enterprises prepare for and give pitches and thereby provide the first 'naturalised' study of this kind of pitch (most existing research on investment pitches tends to be based on televised 'pitching competitions' or other similar events). We will also conduct semi-structured interviews to understand both:
- the processes assessors use to make sense of the pitches and assess the start-ups
- how they may then go on to recommend or publicise these ventures to others