Greetings! If you’re unlucky enough, like me, to be stuck in this heat 🥵, I hope you’re finding ways to stay cool!
💭 Thought Bubble: What Makes You Different?
It has never been easier to spot a problem, prototype a solution, and start to build a company around it. Overall, this is a good thing, but when barriers to entry are low for everyone, it also means most companies start out facing stiff competition. If you’re not clearly articulating your competitive advantage within your market to investors, raising capital is going to be an uphill battle.
For investors, the sweet spot for competition is a little bit of a goldilocks situation. Too little competition and investors wonder why no one has tried this before—is the market not there or too small? Is the problem a real priority for the target customer?
On the other end of the spectrum, having too much competition can also scare away investors. The big potential outcomes in venture often come from category creators, which is why investors might be hesitant to invest in a fledgling company if there are already well-funded ones solving similar problems. Even if there aren’t well-funded startups but there are several that have been around for a while that haven’t scaled, investors will wonder why this is the case and why you and your company are well-positioned to do what so many haven’t been able to do.
So, what is the best way to answer when an investor asks you how you’re different from your competitors? Like so many other things at the Seed stage, this brings us back to the team. What is your unique insight into the problem that allows you to build a solution 10x better than what’s out there? What do you know that no one else does about your potential customers’ needs? You have to articulate this early and often.
How to display this in a slide deck is a (surprisingly) hotly debated subject amongst investors, but I’ll point you to this DreamIt blog post for some thoughts on how to set up a “power grid” for your competition slide, which I, personally, find helpful. One thing I’ll reiterate from the post is that this doesn’t have to be limited to product features; you can also include things like go-to-market strategy and/or business model. Just be sure to also include why this is an important differentiator for your customer or for the market in your voiceover.
Competition can feel like the land mine part of the investor pitch. Some founders get worried that saying too much will make investors skittish, but that runs counter to how most investors think, or quite frankly, what they see. We have had too many founders tell us there is no competition when we have literally seen three other similar businesses that month. Being upfront and crafting a thorough response to why your company is different can be an advantage in and of itself.
📃 The Inside On What Investors Are Telling LPs
Just like founders, venture funds have investors, called limited partners (LPs), whom they must update. In this LinkedIn post, Henri Pierre-Jacques, Managing Partner at Harlem Capital, posted his take on the market and what he has been sharing with Harlem Capital’s LPs. Noteworthy stats he cites include the following:
“Time between rounds has increased to 24+ months across stages”.
“70% of rounds are now $10M or smaller”.
“Unit economics and capital efficiency matter more now”.
Note: This isn’t surprising but is definitely worth highlighting because we have seen it so frequently.
✖️ Series A Metrics Don’t Exist
Charles Hudson at Precursor Ventures put out another great post on how nebulous Series A metrics are. There are so many nuances to investing, and it isn’t just about hitting various quantitative thresholds. Investors rarely have straight answers to questions, and I get how frustrating hearing “it depends” can be for a founder, but that’s, unfortunately, usually the truth. I won't give away too much, because you should definitely check this post out, but one of my favorite points is that top-line revenue is an imperfect metric. Investors take into account things like margin, growth rate, and churn, which is why just shooting for $2-3M in ARR might not get you there.
☀️ Customers are Still Buying
While not completely fundraising related, what your customers are (or aren’t) buying ultimately impacts your ability to raise capital, which is why SaaStr’s annual Buyer Behavior Report is worth a glance. It turns out 49% of the 1700 buyers SaaStr surveyed are increasing SaaS spend in 2023, while 42% are holding steady, which from the author’s data and perspective, hasn’t changed much since 2022. Maybe it’s not as bleak out there after all…
😴 Decompression Zone
We are going to keep bucking pessimism with this next one! Especially after the pandemic, it’s easy to be doom and gloom about medicine and the current state of healthcare, but a recent article from the NY Times sheds a more optimistic light onto things. Turns out, we might just be on the brink of some incredibly exciting innovation with unknown potential.
👋 Have a great weekend!