A Nurse's Wife Grows Wiser About Prize-Money Pitch Contests

It’s been a while since I wrote in this series, but the other day I felt like I saw the “fruit of years of accumulation,” so I’m writing this.

By way of background, my wife graduated from the nursing program at a medical university, worked as a nurse, then married me and got dragged off to America against her will—a so-called “ordinary former-nurse housewife.” She’s extremely security-oriented, conservative, and would welcome a stable rural life, and I’ve dragged a person like that all the way to America and forced her aboard a rickety boat sailing through the rough waves of risk and reward. I do feel at least some guilt about that. A bit, anyway. I think it’s fair to say I feel no small amount of it.

What I mean by “ordinary” here is: she doesn’t understand the internet, doesn’t understand making things, obviously knows nothing about startups, and has zero otaku tendencies.

But maybe because I tell my wife everything about work, I’ve felt over the past few years that what she says increasingly hits the mark. That’s the state of things as we mark our sixth wedding anniversary. Amid all this, there was a certain conversation the other day.

Me: “Our company was just on TV.” Wife: “Oh, what happened?” Me: “There’s this thing called Startup ◯◯. We ended up on TV because of that.” Wife: “That sounds like an impressive name.” Me: ”…The prize money was $◯ million.” Wife: “Prize money? Not investment?” Me: ”!!!”

I was floored by how precisely on-point that jab was. That’s right—this story is actually about investment.

Or rather, in most events targeting this kind of startup that advertise “Prize money: $◯◯!”, the reality is investment. At best it’s a grant. But grants usually come with conditions, and most often in a reimbursement format like “if you spend $300,000, we’ll grant you $100,000.” In other words, it amounts to “we don’t even have that kind of money in the first place!” followed by “Ah, then shall we introduce you to a good interest rate?” It’s a pretty well-crafted setup.

Now, what’s the difference between investment and prize money…

It’s the difference between heaven and earth.

A CEO friend of mine once said: “Taking on investment is always the worst-case scenario.” I really do think that’s true. Taking investment means handing over equity. What does handing over equity actually mean? Different people use different analogies, but the one I find most apt is: “it’s like getting married.”

People often say “my wife changed after we got married,” but what changes isn’t each person’s essential nature—it’s the relationship between them. Just dating and being lovey-dovey day to day is a far, far different situation from the process of living together and building a household. In the latter, both parties need to become a true community of shared fate, comrades in the truest sense. That means there are parts where you can no longer lean on each other’s indulgence, and times when you have to hash things out with harsh words. But it also means gaining a relationship where you can exchange words that lay bare everything—weakness, bravado, all of it mixed together, in the truest sense. Because of that, the bond between the two parties is strong, and it takes enormous effort to sever it.

In other words, as I said, this is what the relationship with an investor should fundamentally be like. So taking on investment on a whim is on the same level as getting married on a whim—it shouldn’t happen. In other words, “Win the pitch contest and you’ll receive investment!” carries the same “delightful, but kind of awkward once you really think it through” quality as “Win the variety show and you get to marry ◯◯ (insert your favorite celebrity here, lol)!”

If, after an investor’s money comes in, you think “They’ll probably just complain and rush our schedule—let them talk, let them talk,” that’s a naive read of the situation. It really is marriage, so there’s no telling how long you’ll get to play the domineering husband, and don’t be surprised if you find yourself not just henpecked but with one less side dish at dinner than everyone else before you even notice.

Conversely, the assumption that “investors should just put up the money and that’s it” is also naive—or rather, wasteful. It’s like saying “my wife just needs to keep the household running.” Marriage is a community of shared fate in the truest sense. If so, it should be a natural part of the relationship for both sides to contribute ideas, sometimes act as watchdogs for each other, and provide hands-on support when needed.

The above only captures a slice of the relationship between investors and startup founders, but considering all this, “taking on investment” is an extremely weighty act. Both sides need to carefully assess together whether their sensibilities and terms align in the short term and whether they can share a vision in the long term. It’s never simply a matter of “whoever has the money is in charge,” nor is it “everyone’s excited right now so it’s basically a feeding frenzy.” It’s not that simple a story. This, too, is exactly like marriage.

One last thing to add: in most cases, this kind of “prize-money pitch contest” tends to be problematic in the following ways:

• The relationship between the amount offered and the equity stake taken in exchange is often skewed (excessively favorable to the investing side)
• The handling of intellectual property is often written in a way that’s dangerous (excessively favorable to the organizer’s side) This is clearly “an act of preying on startups that have technology but shallow knowledge and little experience.” When I was in the US, I consulted a lawyer with extensive experience nurturing startups about this kind of thing and showed him the documents. He asked me, “Are you planning to sell off your company?” That’s the kind of clause that gets written in as if it were perfectly normal.

Knowledge is power. If you can equip yourself with enough logical armor to fight and enough thick skin to withstand negotiations, and if you can bring a certain calculated shrewdness to participating in this kind of event, then I think that could actually be worthwhile.

While I was writing this post, tapping away at my laptop in the living room— Wife: “What are you doing?” Me: “Writing a blog post.” Wife: “Haven’t done that in a while. Still at it, huh? So what’s it about?” Me: “That Startup ◯◯ thing from before.” Wife: “The one where you didn’t win?” Me: “No, the one about that prize-money contest.” Wife: “Ah, so it’s the story of my moment of glory, lol.” I don’t dislike this side of her. My comrade-in-arms.

Originally published in Japanese at https://clazytech.com/2016/09/99/. Translated with LLM assistance and reviewed before publication.