What do investors want? This is a common topic for blogs, entrepreneurs and investors. So here’s another view on it, from somebody who knows:
Naval Ravikant, the speaker, has been through the ringer a few times, on both sides of the investment table. I watched one of his ventures, epinions.com, very closely, because my daughter and son-in-law were employees. So now, a few years later, I follow his Venture Hacks blog.
Most of what he says here is pretty standard. And if you’re interested, his fellow blogger transcribed this interview on Venture Hacks. Some highlights:
“I look for two things that are paramount above all:
- Great team. It’s obvious. It’s a tautology. Everybody says it. You have to be working with some of the best people in the industry you’re in.
- Huge market. Niche markets just don’t work because the first idea never works. You always have to change the idea, so you need room to maneuver in a big market.
“There are three more factors that I look at. Not all three of them are required, but I prefer a company to have at least two of them:
- Difficult technology that is compounding over time.
- A proprietary distribution channel. A clever viral marketing, or SEO, or partnership, or whatever strategy that gives them a leg up over competitors.
- A direct monetization model. Something more than throwing up 10 cent banner ad CPMs.
Ravikant has more authority on this than I do, but his reference to niche markets bothers me a bit. I like niche markets in a world that is constantly splintering and dividing itself into finer and finer pieces. Some of the biggest markets there are started as niches: Facebook, for example, focused first on a few university campuses. Yahoo was a niche–the Internet–when it started. Starbucks was once a niche (gourmet coffee, affordable luxury) in the Northwest.
This entry was posted on Monday, September 29th, 2008 at 7:15 am and is filed under venture capital. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.2 Responses to “What Do Investors Want in a Startup?”
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September 29th, 2008 at 9:05 am
Hie Tim,
Yeah me too, i was surprise to hear that niche markets don`t work. I dont have one myself since i sell product for a marketing company but i always hear or read that we need a niche to survive against the giant like wal…
Anyway this is still a great video.
Thanks a lot.
Michel Richer
CEO Hombyz
October 4th, 2008 at 5:02 pm
Tim,
You’re right and you’re wrong.
A niche market is a goldmine when a market is well-established. For example, the market for coffee is well established in the USA. Starbucks found a Niche inside the coffee market and exploited the niche.
The same is not true when you are providing a service or a product which is truly innovative. The optimal buyer has never seen or heard of your product or service. Worse yet, you don’t know who the optimal buyer is. You may think that you know who the target is but history has shown that such guesses are usually wrong.
My friend Dr. Cornwall of Belmont University does a very good job of explaining the need for flexibility in market identification within an innovative service or product in his article entitled: “The Risk of Assuming the Market wants ‘A’, when it Really wants ‘B’” (Link: http://www.drjeffcornwall.com/2008/09/the-risk-of-assuming-the-marke.html)
James Shewmaker
Qwerty
http://qwerty.us/