What Venture Capitalists Hear

Venture capitalists have an easier time than you might imagine distinguishing between experienced CEOs and first-timers.  It has a lot to do with the “language” a presenter is speaking.  Here are some examples:

“Our technology is so compelling it speaks for itself.”

A very large percentage of high tech startups make this mistake.  It makes some sense, because the founders are often immersed in their technology, and they understand it better than anyone else on the planet.  But if you use technical language or jargon to describe your invention, your audience may not get the message.  And they won’t necessarily admit it to you.   You should assume that investors are not technologists.  You need to explain your invention in simple, everyday terms without resorting to jargon or technical language.   

”We only need to capture 1% of large market to be successful.”

The VC hears: “We don’t know how to develop a profit strategy, and we don’t know how to segment our market.”

Profitable companies usually have market share in excess of 20% within their “served market.”  A company with 1% market share would be lost in the noise. Usually, when companies say this, they have not segmented their market narrowly enough to define the niche in which they intend to participate. They need a much narrower definition of their served market so they can claim a meaningful share.

“We have no competition”

The VC hears: “we don’t really know how to think about competition in an industry.”

Every company has competition, even if it’s just the status quo or the existing way of solving a problem. Michael Porter’s book Competitive Strategy shows how to perform in-depth analysis of the competition within a market.  It’s a complex subject.  You need to convince your investors that you understand competition within your industry well enough to know exactly how to obtain “sustainable competitive advantage.”

“Our product is better than anything out there.”  

The VCs reaction: “Of course, everyone says their product is better.  The real questions are, “How much better? And how is “better” measured?”  it’s not enough to show that your product is “better.”  You need to show that it is “enough” better that customers will buy it, and that you can sustain that advantage for 15–20 years.

“Our CEO is a successful, serial entrepreneur.”

The VCs reaction: “if your CEO has been so successful, why do you need our money?  Why doesn’t he at least provide the seed capital?”  What investors want to know is, “How did his investors make out? What was their return on investment?” If it’s a good story, tell it. If not, maybe you shouldn’t advertise it.

If some of these statements sound familiar, you might want to consider finding a way to involve more experienced management in your company.  VCs are pretty good at speaking the “language of experience.”

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