Customer Validation: The most potent validation of any value proposition is customer acceptance. Most experienced investors will not substitute their judgment for the customers’. Until customer acceptance is a proven fact, presenter will be asking investors to do exactly that. Founders need to realize that such a request is likely to be declined. Investors who find a value proposition attractive may simply wait until they see a presentation by a team that has obtained customer validation. In the meantime they have received a free education on developments within the space.
Margins and Overhead: Investors are very sensitive to how value propositions that might be commoditized. Commoditization means shrinking margins. Too many investors have had the experience of providing funds for a company that assumed their margins will either stay the same or increase only to find that commoditization has sharply reduced them. It is not sufficient to demonstrate that early margins will be substantial. If a company is going to thrive, it needs a value propositions which maintains margins and allows for controlled overhead. If, for example, a company will have to make substantial investment in ongoing research and development in order to remain competitive, investors will assess the team and its potential to stay ahead of the game. Technological advantages are very hard to maintain and easily lost. When lost, margins either shrink or disappear.
As you will no doubt gather from the above, the issues surrounding the value proposition are much more complex than a simple analysis of the product or service being offered against the possible pricing structure. Investors are very sensitive to the ability of the team to monetize any value proposition. The more progress a team has made in that direction, the better its chances of being funded.
Next: The Money Chase: What Does Investment Grade Mean? Part 3 – The Team
I wish the VCs really did what you have said that they do. While I tend to agree that its easy for VCs to know more about products involving single technologies. I do not think that it is easily possible to evaluate alternative systems particularly when it involves abstract technologies such as software. Unless the VCs have the time to see such abstract technologies in action, through demonstration, they can hardly grasp it with the help of written words.
I always wished that VCs were more technologically aware or at least had the services of relevant technology experts, who could correctly evaluate the true commercial potential of any new technologies.
I keep repeating this in many forums. VCs and fund managers who are unable to correctly assess the commercial potential of new technologies are a dangerous species. They were responsible for the melt down in the in 1999 as well as in 2009. Though a decade had passed they never seem to learn, They only keep shifting sectors. In 1997 it was web sites. In 2007 it was home sites ( I mean residential real estate).
[...] This post was mentioned on Twitter by Martin Soorjoo, Martin Soorjoo. Martin Soorjoo said: Good piece on how investors approach the value proposition http://ow.ly/10HJN [...]
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I wish the VCs really did what you have said that they do. While I tend to agree that its easy for VCs to know more about products involving single technologies. I do not think that it is easily possible to evaluate alternative systems particularly when it involves abstract technologies such as software. Unless the VCs have the time to see such abstract technologies in action, through demonstration, they can hardly grasp it with the help of written words.
I always wished that VCs were more technologically aware or at least had the services of relevant technology experts, who could correctly evaluate the true commercial potential of any new technologies.
I keep repeating this in many forums. VCs and fund managers who are unable to correctly assess the commercial potential of new technologies are a dangerous species. They were responsible for the melt down in the in 1999 as well as in 2009. Though a decade had passed they never seem to learn, They only keep shifting sectors. In 1997 it was web sites. In 2007 it was home sites ( I mean residential real estate).
[...] This post was mentioned on Twitter by Martin Soorjoo, Martin Soorjoo. Martin Soorjoo said: Good piece on how investors approach the value proposition http://ow.ly/10HJN [...]