Should an Entrepreneur Pay to Pitch?

No.  They never should, and if they do then it indicates a lack of drive, verve and creativity in reaching angels and VC’s.

Here is how I see it:  VC’s make money by investing in successful companies, and like to believe that their input along the way with regard to ideas, best practices, contacts and reputation bias the outcome – I certainly do.  To ensure that they get to see good ideas they meet a lot of people, and will invest in a single digit percentage of those they initially meet with – the funnel.  Every VC tells me that the best ideas they get are vetted by people the trust and not the result of receiving a presentation in the (e)mail.  I can personally attest to that.  If someone smart that you trust says “look at this”, you will.  I think in the past year I have had over 300 hour-plus conversations with entrepreneurs pitching their ideas – and this is just the initial meeting or call.  Some subset have led to multiple meetings, calls, research hours and the end result has been less than a handful of investments in the fund this year ~ about a 1% pitch-to-investment ratio.  Time will tell how many great ideas were passed on.

Why do we reject 99% of ideas presented to us?:  There are many reasons, some can be articulated and some not.  There are probably a handful of common reasons that account for the majority of the non-invest decisions; portfolio fit, people fit, management, size, terms, and addressable market.  A random selection of some of the questions we think about are (in no particular order):  Does this fit our investing criteria?; Is the idea big enough, yet the execution focused?; Does management listen?; Is this a team and an idea that we want to spend then next 5-7 years being around and thinking about?; Is the investment at a reasonable valuation?; Are the terms reasonable?; Does the capital raise get them to profitability and if not then do we care for the risk?; What is the operating leverage in the model?

What entrepreneurs should do to increase success?: In fact there is quite a lot here.  In fact how a management pitches an idea and manages the fund raising process is telling of itself, and something we listen to.  In simplest terms know who you are talking to and what you want out of the conversation.  Your objective should be to find the VC that has the best fit for you.  To do that start by leveraging your contacts and the web to identify potential VC’s.  If you have direct contacts use them to get a personal referral to a VC.  Before your first conversation with a VC review their website and see if they describe their investment philosophy, list their portfolio and describe their ideal investment.  If they do, then are you a fit?  If not then ask the VC if they know of another VC that might be a good fit.  It is a job in itself, and so paying to pitch seems to be a good shortcut, but in reality there are no good shortcuts here.