What VC's Are Looking For
"The process of getting a VC to invest in your business should be pretty simple. After all, it isn't a complicated formula — VCs have money to invest, and you have a business looking for investment.
While the process shouldn't be complicated, it isn't easy. The overall investment climate may be improving for VC-backed start-ups compared to two years ago, but there is still significant competition for investment dollars between entrepreneurs.
While the VC world is like any other business environment with certain ground rules, some entrepreneurs seem to over-complicate what is really required. They talk about the secret sauce in their business plan, or the need to create revenue models with little probability of attainment in order to demonstrate the mythical hockey stick revenue curve to pique our interest and reach the so-called "second meeting.""
"You need to show us that you are building something that customers need. It doesn't matter whether I think you have a good idea — what do your customers say? I can't afford to spend money to educate customers to buy a product that solves a problem that they don't know they have.
Before you draft a business plan, write a line of code or work on the product framework, there are end-users with urgent problems. They exist today, long before there will be customers for your great idea. Go and talk to them first. It isn't that hard to find people willing to talk about their problems, especially if you are not trying to sell them something. Look for the early adopters, and those that are willing to work with start-ups. Find out what their problems are and what they need in a solution. Separate the critical must-haves from the nice-to-haves.
You need technical validation of your idea, but you also need customer value propositions, case studies and customer references. Once you understand their requirements and business case, you can begin to look inward and figure out how your idea can solve their problem. Then come and see me and tell me about your idea, because a customer-driven focus is what turns an interesting idea into a great idea in the eyes of VCs, and separates entrepreneurs from inventors.
Too many start-up companies remain engineering-driven, spending too much time trying to build the perfect product from a technical perspective, developing features that the market may not need or want. A critical hire, if not already covered by the founding team, is filling the product management/marketing role early on. Find someone that can establish the product requirements based on customer needs and feedback. Build your company so that customer focus is part of your DNA."
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While the process shouldn't be complicated, it isn't easy. The overall investment climate may be improving for VC-backed start-ups compared to two years ago, but there is still significant competition for investment dollars between entrepreneurs.
While the VC world is like any other business environment with certain ground rules, some entrepreneurs seem to over-complicate what is really required. They talk about the secret sauce in their business plan, or the need to create revenue models with little probability of attainment in order to demonstrate the mythical hockey stick revenue curve to pique our interest and reach the so-called "second meeting.""
"You need to show us that you are building something that customers need. It doesn't matter whether I think you have a good idea — what do your customers say? I can't afford to spend money to educate customers to buy a product that solves a problem that they don't know they have.
Before you draft a business plan, write a line of code or work on the product framework, there are end-users with urgent problems. They exist today, long before there will be customers for your great idea. Go and talk to them first. It isn't that hard to find people willing to talk about their problems, especially if you are not trying to sell them something. Look for the early adopters, and those that are willing to work with start-ups. Find out what their problems are and what they need in a solution. Separate the critical must-haves from the nice-to-haves.
You need technical validation of your idea, but you also need customer value propositions, case studies and customer references. Once you understand their requirements and business case, you can begin to look inward and figure out how your idea can solve their problem. Then come and see me and tell me about your idea, because a customer-driven focus is what turns an interesting idea into a great idea in the eyes of VCs, and separates entrepreneurs from inventors.
Too many start-up companies remain engineering-driven, spending too much time trying to build the perfect product from a technical perspective, developing features that the market may not need or want. A critical hire, if not already covered by the founding team, is filling the product management/marketing role early on. Find someone that can establish the product requirements based on customer needs and feedback. Build your company so that customer focus is part of your DNA."
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For more information, visit www.EvanCarmichael.com. |
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