Today I attended the Swiss Fintech Pitch 3 event in Zurich (with 4 ventures and 4 investors pitching). I used the Daily Fintech Venture Pitch Rating System, which we have used with some success in past Pitchathon events; this is now V3.
Daily Fintech Venture Pitch Rating System
We first tested this out at the inaugural Barclays Techstars Demo Day in October 2014 and my top picks from then seem to have done quite well three years later, so I was emboldened to try it again and refine that MVP at the Nexus Squared Pitchathon in July 2016.
This is Version 3 (at Swiss Fintech Pitch 3, yes 3 is a magic number).
The objective of the Daily Fintech Venture Pitch Rating System is to add some slow thinking methodology and metrics to what is traditionally a fast thinking gut decision.
There are two main attributes – Quality of Presentation & Fundamentals.
For each attribute we use a simple 1,2,3 score (3 is best).
Quality of Presentation. This might sound superficial, but it is a proxy for quality of team & focus. We look for:
- Strong opening attention grabber
- Strong middle with the details, real data, hold my attention
- Strong close, make me want to talk to them.
This is clearly subjective. The quality of fundamentals impacts this (it is much easier to present a great business) but I have seen great businesses that lost investors because of presentation and vice versa. This is also a proxy for quality of founder (see below). So, Quality of Presentation gets a maximum total score of 9.
Fundamentals. This is still pretty subjective as it is based on a quick pitch. We scored Fundamentals on 5 dimensions (so a maximum total score of 15, weighting it more than Presentation):
- Pain. Amount of Pain felt by immediate customers/users in market entry niche. Is this a pain that is acute (customers must have to now) or just annoying (may get around it after untangling the headset cord).
- Innovation. Amount of Innovation involved in solving that pain. In short, any secret sauce creating a barrier to competitors?
- Monetization strategy. Starting with free is good; Freemium works. But the team must have a plan to make money. If the answer is advertising I switch off (because of adblockers, ad-fatigue and because you cannot beat Google and Facebook in what is now a scale game).
- Timing. Why now? Brilliant ideas ahead of their time are money losers. Just another follower in an established market needs lots of capital. Timing is the most critical factor in venture success; see this amazing talk by Bill Gross, the founder of IdeaLab.
- Go To Market Strategy. Is this clearly articulated and credible? This leads to Product Market Fit, where the “rubber meets the road”. Relates to the Pain question.
Then we add Quality Of Presentation to Fundamentals to get total score (out of a max of 24).
- Filters. Investors use Pitchathons as a first filter – actually second filter, because Incubators, Accelerators and Pitchathons provide the first filter. After a Pitchathon, investors look at those fundamentals in more detail but what they are really doing is rating the founder (based on how well they handle questions about the details). The old VC mantra is back the jockey not the horse.
- Founder Rating. Do you see a founder who can go the distance in a hard game? If I added Founder rating I would make it as much as the two other attributes put together (so if the max score of Presentation + Fundamentals is 24 I would add another 24 just for Founder). However, you can only evaluate a Founder in a one on one meeting and the objective of the Daily Fintech Venture Pitch Rating System is a quick rating score based on a pitch.
- CoFounders. “Founder” can mean 2 or more people and that is critical in the early days when founders have to do everything but cannot afford to hire top talent to do those jobs; but the reality is one person tends to emerge as a leader and you have to evaluate that person (think of Bill Gates vs Paul Allen or Steve Jobs vs Steve Wozniak).
- Fast and slow thinking. The theory behind the Daily Fintech Venture Pitch Rating System is combining fast and slow thinking (from this amazing book). VCs work on “gut” – thinking fast based on a lot of experience. Quality of presentation is a gut call but with some metrics based on dividing the pitch into open, middle and close. The advantage of doing this at a live event is that you can also gauge how the people around you are receiving the pitch – crowdsourced gut if you like.
- Confirmation bias. This operates at two levels. One level is highly destructive. Some investors base their gut evaluation of a founder on seeing somebody they are comfortable with. This can simply be disguised racism and/or sexism and/or ageism. This is a well recognised problem in Silicon Valley. Although the top VCs may not have diversity among their GPs they sometimes work hard to get diversity in their entrepreneurs because they know how much this matters, but understanding the problem and doing something about it is a different thing. Another level of confirmation bias is based on seeing other ventures in that “space” succeed or fail. That is why we have Timing as a critical parameter. An idea that failed x years ago might be brilliant now (or vice versa).
The 4 ventures in their own words
Bee Solar Sàrl
(BeeSolar offers a new type of impact investment by installing solar panels on residential buildings in Switzerland)
(A payments marketplace to access any payment type to collect and pay out monies.)
(Lend matches investors with borrowers. Both benefit from a fair and transparent business model.)
Protos Cryptocurrency Asset Management
(Protos Cryptocurrency Asset Management invests in pre-ICO tokens and trades established tokens like bitcoin using advanced quantitative strategies.)
(A Revolutionary Private Wealth Management.)
And the winners is – drum roll please
With a total score of 19, Bee Solar is the winner.
From the snapshot description I had not expected this one to win. It appears to serve a real need and the way they have set this up was elegantly simple. If the IRR (net over 15%) bears up under scrutiny, they are onto a winner.
We don’t do negative reviews on Daily Fintech because we respect how hard the entrepreneurial journey is. So we don’t say why we gave low marks to others.
And we can of course get it totally wrong. The best ventures often surprise everybody and are roundly rejected/dismissed at the time of launch.
Now we have to wait a few years to see if that was a good call. That is why we waited a few years from the V1 MVP at Techstars in 2014 as we can then see how these ventures performed in the years after the pitchathon applause has faded away.
Investor Rating System
Sitting on the entrepreneur side of the table, you look for two things to qualify if an investor is worth talking to:
- Stage. Do they like to invest Early? Look for clarity below the words e.g. in actual deals and in ticket size and is it pre or post PMF? Investors may say Early but really prefer late stage. Late stage maybe sensible for investors, but I focus on early stage because that is what most attendees at pitchathons are looking for.
- Value Add. Do they have a clear point of view on where they can add value beyond cash and is that relevant to early stage investors.
It was hard rating the investors in this event because there were three different types:
- Angel representing an angel network.
- Corporate VC (Swisscom and AXA in this event).
- VC Funds (RedAlpine and DI Ventures in this event).
My take is that VC in Switzerland is still pretty immature. It does not have even close to the depth of other markets. It was notable that the Swiss VCs had invested in more ventures in Germany (mainly Berlin) than Switzerland. It appears that more VCs VCs fly to Switzerland to pitch to LPs than to invest in ventures.
I was also looking for mention of the elephant in the room – ICOs. Privately everybody was talking about this. On stage it was not mentioned.
Serial Entrepreneurs and Capital Formation
The Keynote was by a Serial Entrepreneur (Stefan Heitmann of MoneyFarm, who is now onto his next venture after a good exit). This is how it works in Silicon Valley and other Swiss Serial Entrepreneurs include Richard Olsen and Dorian Selz. So it is now happening in Switzerland and I expect this will soon have a positive impact on investor appetite for early stage ventures.
Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.