The Second Most Important Pitch: How Digital Start-Ups Must Navigate the Endorsement Economy To Scale

The UK is one of the leaders in promising new digital ventures worldwide. However, there are concerns that many will fail. The aim of this project is to foster a discussion around a pivotal evaluative hurdle that influences the ability of new digital ventures to prosper. One thus far unrecognised factor influencing whether a new digital venture can grow is the backing of industry analysts. 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: analysts wield influence over technology adopters and investors regarding their choice of technology vendors.

We term this hurdle the 'second most important pitch'. 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. Understanding just what is expected in these second pitches and how they are evaluated will make a key contribution to academics, policymakers and those directing and supporting digital ventures.

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. This conceptualisation also lays the groundwork for a potential new area of study within Digital Entrepreneurship.

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 a. the processes assessors use to make sense of the pitches and assess the start-ups, and b. how they may then go on to recommend or publicise these ventures to others.

This study will identify the factors that lead to certain ventures being endorsed and others not, and provide insights into policy and practical options that might help ventures to gain maximum traction with these vital market actors. To publicise our findings, we will implement a detailed engagement and dissemination strategy that includes running a 'Continuing Professional Development' course and contributing to an 'industry masterclass'. Finally, we will also produce four journal articles, two newspaper articles, a journal special issue, and a book.

Project team

The project exploits the capabilities of a team of leading scholars with excellent track records of engaging with academics, policymakers and practitioners and disseminating research findings to wider audiences. Harrison, for instance, was a recipient of the ESRC's 2015 'Outstanding Impact in Business' prize for his pioneering work on business angels. The impact strategy we have adopted in this new project will deploy similar mechanisms to this earlier work.

Engagement

The project has been shaped by ongoing interactions with industry and policy makers. We have developed excellent links with one of the main industry bodies working at the interface between digital ventures and those assessing these second pitches - the Institute for Industry Analyst Relations (IIAR). This organisation has agreed to be a 'partner' in the project and to provide practical support regarding our dissemination and engagement goals.

We will also work with an Advisory Board made up of key industry stakeholders (from our industry partner, Westley Clover, IDC, PwC) and leading Valuation Studies academics (Professors Donald MacKenzie and C.F. Helgesson).

We will engage with policy primarily through our links to the Scottish Government and Scottish Enterprise as well as those with direct responsibilities towards supporting new digital ventures (e.g. the Scottish Government's CivTech Accelerator).

Impact and dissemination

Our broad aim is to help develop the capacity of new digital ventures in scaling-up. We will do this by developing sustainable events (e.g. activities that will continue after the life of this research project). The project will have three main areas of impact and modes of dissemination:

Firstly, for those interested in the 'practices' of digital innovation. Working with our industry partner, we will support digital ventures in becoming 'second-pitch ready', i.e. informed about and prepared to meet the criteria for analyst endorsement. We will effect this by leading industry seminars, writing 'white papers', and delivering a Continuing Professional Development (CPD) course.

Secondly, for those interested in fostering support infrastructures surrounding digital entrepreneurship. Thus, we will work with those in 'technology incubators' and initial discussions suggest that there are already high levels of interest amongst those supporting digital ventures in understanding more about this second pitch. For instance, we have already been invited to contribute to a major 'industry masterclass'. Various other stakeholders have committed to help us find other dissemination mechanisms.

Thirdly, for policy makers. There is much interest at the level of policy in the obstacles digital start-ups face in growing and internationalising. The recent British Government green paper 'Building Our Industrial Strategy', for instance, asks "What are the barriers faced by those businesses that have the potential to scale-up and achieve greater growth, and how can we address these barriers?" (BEIS 2017). In writing this proposal, we have already begun to foster debate on this issue through bringing to the attention of policy-makers the importance of the second pitch. If funded, we will organise a 'policy event' which will involve the Scottish Government, Scottish Enterprise and others. We will also consider innovative policy options to open-up channels between UK digital ventures and analyst firms (the bulk of which are in North America).