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Digital start up research: the second pitch

By Luciana D'Adderio - Posted on 4 October 2018

Dr Luciana D’Adderio has been given a research grant to investigate entrepreneurship issues. Here, she reports on what that project will involve.

Our three-year ESRC project 'The second most important pitch: How Digital Start-Ups Navigate the Endorsement Economy to Scale” is a collaboration between Strathclyde and colleagues at the Entrepreneurship and Innovation Group at the University of Edinburgh Business School. 

The project addresses an evaluation hurdle that plays a major - but unacknowledged - role in the growth and scaling of new digital ventures. Much has been written about the first equity pitch given to investors. While important, this is only an initial step in securing a future for the enterprise. A vital subsequent step is making a ‘second pitch’ to industry analyst firms like Gartner, IDC, Forrester and so on. This further pitch (and receiving the backing of these market actors) is crucial for helping new ventures develop and prosper, but, significantly, it has not yet been studied. 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.

The UK is recognised as amongst 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, “[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 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’.

There is anecdotal evidence that those ventures unaware of these second pitches lose out on finding new customers, on attracting further investment and on reaching international markets. The aspect that showed us that these second pitches were poorly understood by UK ventures was the contrasting fortunes of two promising enterprises we observed during the pilot study, one from Glasgow and the other Chicago. Though the Scottish venture’s technology was considered as good as or better than its competitors, we were told by an industry insider that it was unlikely to prosper. The US venture, by contrast, was already competing favourably for deals against the software giants. The major difference was that the latter had from the outset, as is common amongst US start-ups, regularly pitched to analysts while the former had paid analysts only scant attention. This convinced us that research on this second pitch was likely to be fruitful for academics, policymakers and those directing and supporting digital ventures.

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'. Those designated Cool Vendors 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.

Getting onto the analyst radar normally requires a pitch. But these second pitches are different. It is not just a matter of presenting but also of understanding the analysts’ perspectives. We will analyse the various pitching practices of the start-ups to understand how they present themselves to analysts. The main part of the empirical investigation will be to carry out naturalised observations of pitches. We will supplement our naturalised pitch data with pre- pitch and follow-up interviews, focusing our attention not just on those pitching and analyst-relations personnel, but also analysts themselves.

If you are interested in hearing more about this research or being involved then please get in touch with Luciana D’Adderio at the Hunter Centre for Entrepreneurship by emailing luciana.d-adderio@strath.ac.uk.

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