How Reverse Pitching Works? - Its Advantages & Disadvantages

Start-ups connect with large corporations in many ways. The most common way for start-ups to connect with their larger counterparts is when they try to raise funds from these companies. It is common for start-up companies to approach bigger firms in order to pitch their business. However, a lot has changed in the start-up community over the past few years including the way in which start-ups interact with a business. The modern world is now witnessing a new trend called reverse pitching which is redefining the way in which start-ups interact with mega-corporations.

In this article, we will have a closer look at what reverse pitching is as well as some of the pros and cons which reverse pitching has to offer.

What is Reverse Pitching?

As the name suggests, reverse pitching is the first stage of a potential partnership between two businesses i.e. one business is pitching its ideas to the other. However, instead of start-ups pitching their ideas, the tables are turned in this setup.

In a typical reverse pitching set-up, a highly established corporation calls a meeting with multiple start-up companies. They then share their problem statements with such start-ups. The start-ups then take some time in order to develop a prototype or a proof of concept. After making some progress, these start-ups once again connect with the multinational corporation. At this meeting, the multinational assesses the results which have been created by start-ups. If they find something unique, then the company decides to partner with the start-up in order to bring the idea to life.

Advantages of Reverse Pitching

Reverse pitching is a fairly recent concept. However, it has been gaining popularity very quickly. This is the result of the various advantages which are offered by this model. Some of the important advantages have been listed below:

  • The CXOs of many companies have observed that the research and development departments in their companies are not the most efficient. This is because they act like cost centers and do not have entrepreneurial zeal. Hence, research and development projects are often bloated and cost a lot of money. Hence, instead of blocking capital investment in research and development, the company can outsource this task to a start-up firm. Once they explain their problem statement to the start-up firm, it is likely that the firm will develop the most efficient solution. Hence, many companies are using reverse pitching as an alternative mechanism to traditional research and development investments.

  • The research and development department of any organization takes a long time to develop a solution. If they have to develop many different solutions, then the time taken is multiplied. However, this is not the case with reverse pitching. Since the company can engage the services of multiple start-ups, they can run several prototypes in parallel. This saves them a lot of time. Reverse pitching tends to be very fast-paced since both parties to the transaction want to strike a deal at the earliest.

  • Corporations tend to receive a lot of offers and pitches from start-ups. However, a lot of the time, these pitches do not address the correct problem. Reverse pitching ensures clear communication between all parties. Once start-ups know the exact problem which they are trying to solve, they are able to do so in a better manner.

  • Once a company decides to partner with a start-up, the latter can be assured of funds. They do not have to spend their time trying to convince different investors. They will have the required funds to complete their project without any hassles and hence can focus on execution.

Disadvantages of Reverse Pitching

Reverse pitching has a lot of disadvantages as well. It is important for corporations and start-ups to be aware of these disadvantages. Some of them have been listed below:

  • One major problem with reverse pitching is that it has some geographic limitations. Companies prefer to do reverse pitching exercises with start-ups that are located close to them. This is because companies have to physically collaborate with these start-ups several times. Hence, if they are located far apart, it can turn out to be expensive. Now, since geographical limitations apply, the number of possible start-ups also reduces. Fewer start-ups could mean lower chances of innovation.

  • Data related to start-up companies are not well published. Hence, when corporations are inviting start-ups to participate in their reverse pitching contest, it is likely that they will miss out on some candidates. Lack of proper participation can drastically reduce the effectiveness of the reverse pitching exercise.

  • Start-up firms are often skeptical about participating in reverse pitches because the solution designed is specific to the needs of a particular company. Such solutions tend to be highly customized and cannot be easily scaled up to meet the needs of other companies. Hence, from the entrepreneur's point of view, the scalability is low and hence the valuation is also likely to be low.

The fact of the matter is that reverse pitching is not worthwhile for all companies and all entrepreneurs. However, there is a very specific subset of people who can benefit from using this new process. This is the reason that the popularity of reverse pitching is increasing at an astounding pace.

❮❮   Previous Next   ❯❯

Authorship/Referencing - About the Author(s)

The article is Written and Reviewed by Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to and the content page url.

Startup Finance