Why Investors like to hear more about the competition

Investors like to see competition. Why?

Because studying competitors provides three benefits:

• Competitors provide a benchmark of success for similar products in similar or different markets.

• Competitors are fighting for the same customer, so their financial performance provides good proxy for your performance.

• At the time of exit, they could be potential buyers of your startups.

Now, I want to convince you that there is always some competition. If there is no competition, then most likely the problem is non-existent.

By saying there is no competition, you are probably making investor's life harder when putting together an investment case.

So never say to an investor, “there is no competition.”

Once we agree that there is always competition, we must categorize it into direct competition and indirect competition.

Direct competition comes from solutions that address the same problem and target the same customer segment, with a similar or different approach as your startup.

Indirect competitors are companies or products that solve the same problem with similar or different approaches but target different customer segments.

For example, if you are a talent recruitment platform in the UK for data analysts, then all other talent recruitment companies (online or offline) offering data analyst recruitment services are your direct competitors. Companies offering recruitment services (online or offline) for other roles or in other geographies are your indirect competitors. On a macro scale, Coca-Cola and Pepsi are direct competitors. They are both in indirect competition with Starbucks.

Why am I telling you this?

Because investors are interested in direct competition, not indirect competition.

Having direct competition is a sign that the market is mature and problem exist. In this case, an investor would not ask you questions to validate the existence of a problem. Rather, they would like to know more about key differentiation and why customers choose your solution over others.

If there is no direct competition, only then will investors shift their attention to indirect competitors. Although indirect competitors are not good proxies, something is better than nothing to quantify risk.

What if there are no direct or indirect competitors? I am still thinking of one, so if you know any, let me know.

To sum it up 🥁🥁

• Never say you have no competition. There is always competition in the market. If there isn't, the problem is likely non-existent or not worth solving.

• Investors are interested in direct competition

• In case you have direct competitors, don't spend too much time explaining the problem. Focus on differentiation and customer validation.

• In the case you do not have direct competition, only then talk about indirect competitors, but focus more on how you validated the problem and sized the problem.

• In the VC world, brevity is much appreciated, not just from founders but also from all team members.

Always explain like I’m VC (eliVC 😉)!

Are you fundraising? 📈

If you are a startup founder looking for advice and support with VC fundraising, Write to me at [email protected].

It's important to remember that this information should not be considered as financial advice. Always conduct your own research and due diligence before making any investment decisions.