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How to think like a VC and attract investment

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John Flynn

John Flynn

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The Web Summit is a must attend event for aspiring start-ups. It offer a wealth of opportunities to meet and learn from leading entrepreneurs who have built some of the most notable tech companies over the past decade.

The business-building and networking possibilities are second to none whereby promoters can test their ideas with leading tech journalists, customers and partners under one roof over a few short days.

There has never been a better time to be a technology entreprenuer. The cost of bringing a product to market has reduced dramatically. The explosive growth of data centres has obliterated expensive server capex and enabled capital efficient scalability.

The success of the Web Summit in Dublin is testament to this international focus and hundreds of leading VCs are making the trip to seek out the their next investments.

But entrepreneurs still face challenges in gaining access to venture funding and need to be aware of the key features that drive interest from a venture capital fund. Outlined below are the key features that VCs looks for when evaluating a business plan or a presentation pitch.

1. An Entrepreneur with a unique market insight which underpins the opportunity and is based on deep domain knowledge. This needs to be married with personality traits that encompass an extraordinary drive, passion and commitment with high levels of integrity, analysis, and an ability to absorb advice. A key acid test is that they have the ability to attract a world class team including leading sector experts into management and advisory positions. It is vital to surround yourself with people steeped in sector knowledge, to show your business has an understanding of the market it is trying to address. This reduces the risk and increases the odds of success for the entrepreneur and the investor. Like the Founder, this core team needs to possess an expert level of domain experience, complementary skills and a strong network to consistently test and prove the market and investment thesis and attract top talent to every layer of the organisation. The quality of the first ten employees can be one of the most significant determinants of ultimate success.

2. Large, high growth and timely market opportunity. The size of the available market is the key building block for a VC investment decision. We often see very backable entrepreneurs trying to build businesses in niches which can offer a solid opportunity for the entrepreneur but perhaps less so for the VC investor. It is, therefore, vital to ensure that the market opportunity is large enough. Promoters need to be sure to size the market correctly with a top down and bottom up analysis and convince the investors not only of how large the opportunity is, but also why it is ripe for disruption – by them and their team.

3. A competitive offering and strong market entry strategy. VCs are generally looking for products that cannot be easily replicated and that promise to fill a void or unmet need in the marketplace that can be monetised. The value proposition needs to resonate directly with the target customers as this makes market entry viable for a young company. It reflects the fact that customers want the product and are prepared to buy it from the early stage business as there are few alternative sources. Being able to speak with authority on the competitive offerings and identify how you will win in the market is an essential ingredient. This capability attracts VC investors. Entrepreneurs need to be able to define the business in a single statement and clearly identify the problem they are solving. The value proposition should show how the offering addresses a need without creating new problems in the process of adoption.

4. Scalable and capital efficient business model. A significant number of start-ups fail because it costs more to sell their product than they are able to make from current sales or any level of future sales. Companies should be able to demonstrate that initial invesments can prove the market opportunity and that the business has the capability to acquire customers. To secure further expansion investment thereafter the business needs to convince investors that the capital will fuel rapid and cost effective growth.

John Flynn is managing director of ACT Venture Capital

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