On his blog, Lee Hower (one of LinkedIn founders) has an interesting post titled “Making good decisions still means you are sometimes wrong” in which he talks about the tough choices VCs have when deciding which startup to back. There are so many deals coming their way, they can’t possibly bet on every single one of them and identifying good opportunities, especially early stage, is really difficult.
I especially liked his link to Bessemer’s “anti-portfolio” web page where they show companies they declined to invest in and have great comments on why. Just goes to show that you shouldn’t feel bad after that meeting where the VC tells you the startup you have been working on and investing your life savings is not interesting to them. Maybe they are missing on the next eBay, Google, or PayPal. Just maybe. 😉
The question that seems to be a deal killer, no matter what type of product you are building, is the market sizing one. It comes in various formats:
- “What is the size of the market?”
- “How big can this get?”
- “What are the growth prospects?”
Among others, is a key question that often turns off potential investors. Especially if you can’t answer it “correctly”. A nice post by Bryce Roberts titled “You can never size a market in Excel“tackles this pesky problem entrepreneurs face and gives sound advice:
“An investor’s instinct around something as fundamental as whether your business can reach the scale needed for venture capital returns is one that won’t be found scouring the latest market forecasts from Forester or Goldman Sachs. It won’t be found in endless meetings and it won’t be found in detailed financial forecasts or market sizing exercises.
It will be found in the connection an investor makes to you, your product and your vision. Either they will believe it or they won’t.”
It is a refreshing view on the question of market sizing. And also tells you a bit about how to assess whether the investor in question will be really a good match with your startup.
Check out the full article here.