Fastpitch: a look at the horse’s mouth

Despite the proverb, some gifts should be looked at – if only to determine their true value. The one I have in mind is the $15,000 of touted value in the grand prize for the Icehouse Fast pitch competition.

There are prizes for winners in four categories, and one overall winner. The categories are Best Funding Opportunity, Best Intellectual Property, Best Presentation and People’s Choice.

The category award winners get:

  • BNZ: Cash Prize $1000 plus  BNZ bank account (final wording TBC)
  • Microsoft: 1 suite of Microsoft software package: Office professional, Vista Business and One Care (Value $1717) (final wording tbc – they no longer distribute One Care)
  • Gen-i: 1 Telecom T Stick (C597) Mobile Broadband USB Modem (Value $349) (final wording TBC)
  • NZTE: Escalator Investment Ready Consultation (Value $3000)
  • The ICEHOUSE: Opportunity to pitch to investors
  • NZ Business Magazine: 12 month subscription
  • Ideolog Magazine: 12 month subscription
  • The ICEHOUSE Certificate

The best funding opportunity prize winner also gets a “business consultation session” from Ernst and Young. Oh – and this list is pasted directly from the competition webpage – including the embarrassing “final wording TBC” comments.

The grand prize winner also receives:

  • The ICEHOUSE: 3 months residency at the ICEHOUSE’s leading incubator ICE Accelerator to develop your business dream (Value $10,500)
  • Microsoft: A Microsoft Small Business Server (final wording TBC)

So it seems the grand prize is worth over $15,000, and the total prize pool is over $45,000, whch makes the category prizes worth $7,500 each.

I disagree with those values.

Instead I calculate that the grand prize is worth $2,700, the total prize pool $12,000 (73% less) and the category prizes worth $2,327 each.

The real dollar value of the prizes comes from donations from BNZ and Microsoft – whom we should genuinely thank for their contributions.

Smaller value comes from Telecom – a data stick is valuable but also an invitation to spend money.

Consulting firm Ernst Young offers a business consulting session – but that’s something that you could have with me (come November) or anyone else for the price of a coffee. A single session really isn’t that useful either – real value comes from an on-going relationship, and that can get expensive with a big name firm.

The 2 magazine subscriptions are nice, but not worth a lot of money.

However the downright shonky value comes from including Escalator program and from the Icehouse’s prizes.

The Escalator program is actually free. It is a government funded and privately delivered program to match funders with SMEs. If you meet the criteria, as I assume the category winners of this competition easily would, then you pay nothing. In fact it appears from the escalator website that you cannot buy the services at all. Go check it out, and even apply.

The Icehouse itself provides three prizes – the opportunity to pitch to investors, an Icehouse certificate and, for the grand prize, 3 months in the Icehouse.

None of that is actually worth anything.

A certificate is obviously worthless and a Google search for “Icehouse certificate” yields exactly one (invalid) result.

An opportunity to pitch to investors is more than adequately provided from by the Escalator program – it’s their job. Meanwhile the FastPitch event itself is, well, an opportunity to pitch to investors. Idealog will be there and will no doubt be covering the event, so the word will get out as well. We should remember also that New Zealand is a small place, and you can easily get in front of investors if you drink enough coffee.

The stated value of the grand prize of a 3 month Icehouse residency is troubling. Why would anyone pay $10,500 to be at the Icehouse – or any incubator – for three months? (I’ve heard that the going rate for the Icehouse is over $2500 per desk per month.)

That’s a serious amount of money spent that would be better off invested into your business.

The successful Y-Combinator program invests US$10,000 or so into its companies, while giving them free coaching, providing free legal help with incorporation and entree into VC firms. In return they get 2-10% of the companies, and provide a 3 month “don’t call it a boot camp.” During the three months the companies work on their products, not on their pitches.

Is the Icehouse perhaps a reverse Y-Combinator – taking $10,000 away from companies rather than investing $10,000 in them? If the Icehouse truly believes their own publicity, then why not turn the equation around – and give start-ups $10-20,000 and free seats in the Icehouse in return for 2-10% of their equity?

I accept that incubators have a place – after all it is fun to work with like minded souls, and you can learn from the people there – but charging this sort of money is nothing short of extortion.

If you are starting a business then you need to think cheap, think cost effective and think smart. Work from home or short-term rent one of the empty offices around. Even better find someone that is willing to let you camp in their office for a month or two – you’d be surprised at how many spare desks there are, and if you are in Wellington in particular, then advice from people that have done it before is a walk to Mojo away.

So here it is – in summary form.

Overall I feel the prize package, as it stands, is worth  lot less than advertised.

The entry page states that:

The total prize pool is valued at over $45,000 and is supported by ICEHOUSE founder The University of Auckland Business School and corporate partners BNZ, BCG, Ernst & Young, HP, Gen-i, Microsoft, Minter Ellison Rudd Watts and Telecom.

While it’s good to see Ernst Young and Telecom in the mix of prizes, I don’t see anything from the rest (though Gen-i is owned by Telecom). How about it?

That doesn’t mean to say you shouldn’t give it a go – you should. There is value here in three ways:
Creating your pitch. It’s hard to crystallise your business or idea into a short pitch, but it is a very healthy exercise. You need to be able to clearly articulate exactly what opportunity you are going after, why there is value there, how you are going to do to capture it in the face of competition and how you will execute quickly and well enough. And you need to do this in 30 seconds, 2 minutes, 5 minutes, 15 minutes, one hour and so on. Your pitch should be the same, but the length and depth varies according to the audience and the forum.

Doing the Pitch: The FastPitch competition gives you time in front of people with knowledge and money. At the very least you should get some good questions that will help you refine your idea or business. You may even get an introduction to someone that can help you more formally with ongoing advice or money. Remeber that neither are free, but that you can pay with the best currency of all – equity.

Getting the word out: Idealog will be there, and I would hope there will be other coverage in the press. Use the pitch to generate a little publicity for your business, and see if you can attract your first customers, like minded people to work with you or even just a few followers on your twitter account. Use the experience to share your idea with as many people as possible, and run as hard and as straight as you can towards your first revenue.

If you win – then take the prizes on offer. Use the Icehouse as a base, if it makes sense, accept the consulting advice and so on.

However make sure you spend the time and advice on kickstarting your business – and not on the search for capital. Those with money are far more likely to invest in a company that has shown real traction over the three months, and if you do it right then they will hunt you down.

Note: I seem to be copping a bit of association with the word curmudgeon – and blog posts like this probably don’t help. Therefore I am offering free coffee, along with an hour or more of help, to all top ten finalists in this competition. You’ll be getting a lot of other help, but if you want that latte then do contact me. Just wait until November when I am back from Mozambique.

About Lance Wiggs

@lancewiggs
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6 Responses to Fastpitch: a look at the horse’s mouth

  1. stuartm says:

    I’m particularly disappointed with the Microsoft prizes…

    “Microsoft: 1 suite of Microsoft software package: Office professional, Vista Business and One Care (Value $1717) (final wording tbc – they no longer distribute One Care)” – Any Windows computer bought for business use will have Vista Business preinstalled, and an OEM version of Office will cost an extra $400 if bought with a computer. As you mentioned, OneCare isn’t even a current product. If the business happened to have a computer that didn’t have Vista installed, they would be better off waiting for Windows 7 to be released before upgrading anyway.

    “Microsoft: A Microsoft Small Business Server (final wording TBC)” – The big key here is the “final wording” in brackets. An SBS box could cost anything from $2000 to $10,000, and a big part of the cost of SBS is getting it set up properly by an IT vendor or consultant. You’ll also need security software, a UPS and some form of backup hardware. The worst part about this prize is that it’s committing you to running your own server hardware, whereas you could be better off using hosted services like Google Apps or Microsoft Online Services.

    I would prefer that Microsoft donated vouchers towards software so that you could pick and choose what software to use – or you could put it towards Microsoft’s Online Services. Or perhaps include some free consultancy hours from a Microsoft Partner.

    Lots of the prizes listed above seem to be just incentives to spend more money.

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  2. Tim Haines says:

    Where’s the star button on your blog? I need to hit it a few times. Liked this.

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  3. Lance – good to read this. We kicked off Fast Pitch 09 last night, was fantastic. When we ran it last year the key value people got was the experience of practising up to 20x coupled with ‘access’ to the networks. The challenge is always that people don’t buy mostly for those reasons – hence the prizes to get some interest and engagement. We said last night the prizes are a small part of the value and that will stand the experience if we create a good enough series. The point on Escalator is that the sponsorship creates ‘automatic’ access rather than having to be filtered. Understand your comments too on the value proposition of the incubator. After working 10 or so years in this space, and seeing the best and worst of helping start-ups we have developed a lot of experience and knowledge. I disagree with your comments about where to spend ‘time’ and ‘money’- that is based on our track record. But yes, our model does not fit all people and they should make a call each time of whether it is valuable for them or not. The customer ultimately chooses. What I would say is that most start-ups spend far too much time on their product, that is what kills them. They need to spend more focused time on the market, pain points – validating the proposition. Then they can build their product. I would welcome any time the opportunity to chat – there are so many ways to slice the dice in this – and we can all learn from each other. No one has the magic answer unless you are Sam Morgan etc and even he has an interesting story to tell post-Trade Me. Andy

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  4. Julian says:

    I give you 5 stars for the article.

    What they are doing is either lying or deceit, but it’s not right. I think that hard work, bootstrapping and coffees with the right people is the better way to start…

    Julian

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  5. Shu Chin says:

    Hi Lance,

    Finally! Someone with the knowledge, eloquence and clarity to see through all this utter and complete BS. New Zealand is a small place, people know people, so no one really wants to ruffle any feathers. Being a current resident at the ICEHOUSE, I have heard of disgruntled mumblings, but no one has come forward to state it on the web where everyone else could see it. You are absolutely right, it cost $2500 a month to be there, plus another $400 per desk. So, it’s a real hardship for any nascent startup company short on cash. From our market validation process (the first 3 months) we got nothing out of it, meaning no actual documentation of a completed market validation exists, how do you like that? I would welcome your expertise over a cup of coffee.

    Kind regards,

    Shu Chin

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  6. Great post Lance, really enjoyed reading it.
    I also investigated the Icehouse myself 10 months or so back, was outraged at the $2500.00 per month fee, couldn’t see any value in that proposition at all, so decided to use that money and keep working.
    There’s also lots of talk out there right now about Angel groups charging start-ups fees to present , from my perspective this is a low blow, cheap and nasty, bottom feeding.

    Interestingly enough I worked for 6 months within the AUT incubator, which, although filled with nice people I found it very hard to see where the actual value was – I met with the lawyers and accountants etc that are attached to the AUT programme, but I’ve been meeting with Lawyers and Accountants anyway and at the end of the day, I’m going with who i feel is a) the best B) I like c) is excited about what I’m doing, not with the firm that happen to sponsor the programme in question.

    Anyway, in the meantime, I’ve kept plugging away, and now have, what I would imagine the most spoken about piece of design/technology in the world of it’s kind right now, which is starting to translate into real meetings and real potential, in the real market place – which was the intention from the start.

    I wish these incubator programmes etc were more beneficial to people wanting to get their business’s off the ground. Not pluggin away with established firms touting for business, or if they are, offering heavily discounted rates in return for equity, setting up suites within the offices running all open source tools, help with insights into clever marketing strategies etc. From a NZ perspective it would really be more than useful to include “mentors” with a global vision, and work on creating wide reaching networks into the world, I see that as the way forward.

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