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How to Secure Venture Capital: A Series
David Blumberg, Founder & Managing Partner, Blumberg Capital
This post is one of six posts in our Entrepreneur’s Toolkit series – How to Secure Venture Capital. You can find our other posts discussing the following aspects of what we look for when evaluating potential candidates for venture capital: theme, team, technology, traction and terms.
Once you have introduced your founding team and explained why you are the best entrepreneurs to solve the identified problem, the next step is to position your startup by mapping out the terrain, or the market landscape. Leveraging market trends, competitive analysis, industry statistics and business projections, show us how and why your startup will break through and succeed.
Good ideas don’t exist in a vacuum and competition is not a negative indication for a startup’s growth prospects. In fact, competition is what fuels innovation and forward momentum. In addition, competition can show that the market has latent demand and opportunities for growth.
Use this part of the pitch to show investors your strategic thinking – how you will leverage market opportunities, use competitive advantages and defeat threats. During the discussion, address the following questions to best position your company in the startup market:
- How do you compare to competitors? Show us a graphic comparison of the competitive field to explain how you will leverage your strengths and overcome your weaknesses relative to the other companies. The best way to show the multi-dimensionality of the competitive landscape is through the use of market positioning charts and infographics. A couple of examples include:
- Harvey Ball chart: This is for an established market where product features can be readily compared:
- Brand positioning graph: This chart is more subjective and provides guidance on the relative strengths and weaknesses of each competitor:
The more up to date, comprehensive and quantitative the market analysis is, the better.
And remember: the most important audience for the competitive analysis is your own team – the deeper your understanding of the market via market positioning analysis, the better you’ll be able to deploy resources efficiently to win market share.
- What is your business model, positioning and pricing? This is a great opportunity to illustrate and explain the various competitive pricing strategies in the market and how you will differentiate and succeed. Will your business model be SaaS, transaction-based or other? Will you position your products or services as value-based or premium? Explain where your product or solution fits in the market and why you are delivering and pricing in this manner. Frequently, the business model and proper selection of target segments is more important than the pricing itself.
- Are you early or late to the market? Will the market need education? If you’re early to the market, tell us about your market education approach. Do you have early adopter customers or design partners who are willing to work with you and then vouch for your product or service? How will you use content marketing including public relations, seminars, social media, white papers and advertising to further educate your target customers? How long will the market education process take and what will it cost?
If you’re late to the startup market, tell us how you plan to contend with entrenched competitors. How and why will your strategy be effective to displace them? It’s essential to be realistic here – you need to be able to do what you say you can do. Investors are generally pleased if actual results reflect budget forecasts, so be realistic and be ready to explain the variances.
For example, early stage venture capital portfolio company DoubleVerify was a pioneer of digital media verification in 2009. They educated the advertising market through meetings with industry leaders at agencies and prominent brands, conferences, content pieces, infographics and research studies that explained problems that had been unknown or hidden for too long. They helped craft the industry benchmarks for measurement with industry associations including The Interactive Advertising Bureau (IAB) and The Trustworthy Accountability Group (TAG). Over time, the industry standards became more rigorous and extensive, making it increasingly difficult for new entrants to overcome DoubleVerify’s intellectual property edge, resulting in a sustainable competitive advantage.
- How long are the sales cycles in your industry and what are your sales projections? When presenting your company to venture capitalists to show how you stand out amidst your competition, first, show the typical sales process or funnel and quantify the ramp-up of sales people or marketing channels based on your business model and budget. Create a bottom-up analysis of lead generation and potential sales to determine a future annual revenue figure. Evaluate the number of likely sales for your product or service, the average price point of sales and timing of the sales ramp.
While you can show scalability through your TAAM (total addressable available market), a bottom up analysis is generally more realistic and, therefore, more productive in a pitch, for budgeting and use thereafter managing the business.
- Are you planning to sell direct or through distribution channels? Finally, detail your go-to-market sales strategy and whether you plan to sell direct or take a channel approach. There are positives and negatives to both and the best path will be different for each business. In many cases, a hybrid model works best.
For example, Check Point Software began as a small team of engineers based in Israel without sales or marketing staff. For them, a channel distribution approach was imperative. The company began working with value-added resellers and OEM partners and was consequently able to launch much faster to market leveraging these experienced, regional and global partnerships. Initially, all direct sales leads were funneled through those organizations.
The Importance of Transparency with Competitive Positioning & Market Analysis
We explained the need to be honest and transparent when introducing the team and the same is true about the market landscape. The best standard is the truth, the whole truth and nothing but the truth. A comprehensive, honest and self-aware competitive review is one of the clearest indicators of your character and if the team has what it takes to succeed.
Show us how and why your solution is superior in certain respects but also tell us about your weaknesses. What would your competitors say about you? What would a dissatisfied customer say? If your product is too slow, for example, be forthright about it so we can collaborate on ways to improve. If you think there is something to hide, you may be able to hide it from investors but if you hide it from yourselves, you are setting the team up for trouble.
Check back in for our next blog in the series: delivering the right technology.
This post is the latest in our Entrepreneur Toolkit series that explores what entrepreneurs need to successfully pitch their idea to investors to secure venture capital. Ready to take the next steps in securing venture capital for your business? Click here to contact us today.