Memo To VCs: Every Great Idea Doesn't Fit In An Elevator Pitch

I have been thinking a lot recently about the elevator pitch.

The common accepted wisdom is that every great idea, or every fundable idea has to have a good elevator pitch. In order for an idea to be great it needs to fit neatly into a one minute description that at best knocks people's socks off, and at worst makes them extremely curious.

I have come to a conclusion about this. It's Bull.

The truth is that for some ideas an elevator pitch works great. For others, not so much. And there is no direct correlation between ease of explanation and appeal or value in the marketplace. The reason for this is simple. Some things are better seen and experienced than explained. In fact I suspect many of the best ideas fit this description.

As an example, I am a pretty big critic of Facebook, and in particular their likely ability to generate really significant revenue. But that doesn't mean it is not a great idea. And the truth is I don't think anyone could understand Facebook without seeing it. I don't think Mark Zuckerberg could have sat a VC down and said, this is my idea, (or this is the idea I stole from the Winkelvoss brothers or whatever) please invest in me. I don't think it would fly.

The reasons for this are fairly straight forward. With consumer facing products, whether we want to use something is tied to such things as utility, ease of understanding, and social context. And so much of the first two can only come from actually experiencing the product. The Nintendo Wii is a great example of this. You needed to experience the Wii to really get why it was a big deal and how fun it is. Even the iPhone fits this description. Most of the features of the iPhone existed in other phones. It is the design that makes it work.

Another area where seeing is believing is around data driven products. Visualizing data in one's head is very hard if you have never visualized it before. People have varying degrees of capacity for spatial visualization, but few of us are good enough to take an abstract description of a data model and to actually imagine exploring that data. For most people the significance of the organization of that data will be unclear when the explanation is purely verbal.

But when people are allowed to explore real data in real time, things become much more clear. FriendFeed is a good example of this. The product is almost impossible to explain because it is, in essence, a new data model.  You need to experience FriendFeed to get it. And once people do get it, they tend to love it, but they have to get over the experience hump.

And so the challenge here is that many of the great ideas will not have great elevator pitches, because they can't. This means investors must either trust the entrepreneur based on reputation or blind faith, or they must take the time to really try to understand more complicated sounding product concepts. Or worse, they can just avoid any new ideas until they have been developed and tested enough to prove the demand. This is the most common strategy right now in the venture community, but it leaves lots of the best ideas undeveloped because there is not enough early stage money to help these ideas that really need to be seen to be fully appreciated. Paradoxically, I think these are some of the best ideas.

This leads me to an idea that Paul Graham from the YCombinator incubator put forth:

I've tried to explain this to VC firms. Instead of making one $2 million investment, make five $400k investments. Would that mean sitting on too many boards? Don't sit on their boards. Would that mean too much due diligence? Do less. If you're investing at a tenth the valuation, you only have to be a tenth as sure.

It seems obvious. But I've proposed to several VC firms that they set aside some money and designate one partner to make more, smaller bets, and they react as if I'd proposed the partners all get nose rings. It's remarkable how wedded they are to their standard m.o.

We need more money going into more abstract and less obvious ideas, and Paul's idea is the right way to do it. It doesn't take that much money to prove a good idea is a good idea. But often it takes more than an entrepreneur has or can raise. This is particularly true for those ideas that take more insight and time to explain than an elevator pitch affords. Only a relative, or someone who knew the FriendFeed guys were from Google would have been willing to put money into that. Thankfully they didn't need any money because FriendFeed just sounds horrible on paper. That is a case where you would have to have bet the people. But every great idea doesn't come from someone that is already a brand name. In fact some might say the opposite is true.

In any case, the point of all this is simple. Good potentially profitable ideas sometimes take time to really understand and they may take resources to prove. The venture community should spend less time and resources on the obvious and more time and resources nurturing ideas that may take more than an elevator pitch to really appreciate.