A lot of startup founders talk at length about the size of the market, how much of the market they’re going to get and what the opportunity is. But actually, when you look at an opportunity, what’s more important is to get in at the beginning.
Take digitisation and decentralisation of music. Record and CD sales had been climbing for two decades when Napster was released in 2001, making it easy for fans to download music from each other.
It blew up. Everything changed that day. The industry had to react, there was a huge amount of disruption and it was the start of a decade that saw huge platforms like iTunes and Spotify launch.
We’re at that point with Web 3.0 – the Decentralized Web – today. Web 2.0 corportised the internet through services like Facebook. Web 3.0 will see a raft of new services that capitalise on decentralised data networks and artificial intelligence. And, we’re only just starting to get a sense of what’s possible.
What stage are you coming in at?
It’s no good telling investors the size of the market without explaining what stage you’re coming in at. If the size of the market is a billion dollars and it’s not going to grow, there’s really no point, unless you can do some kind of land grab.
If that’s the case, you need to be explicit about the fact that you’re going in at the tail end with something new that can sweep up everything. That normally requires a considerable amount of capital.
On the other hand, if you can show that you’re on the cusp of an idea and how you fit in at the beginning of the funnel, it makes for a good investment opportunity. All we’ve got to do is execute the idea well and then hold on tight as the market balloons.
Find early opportunities in existing markets
It works for startups launching products too. Luxury dog food is a perfect example of a modern development in an existing market. If you go back and look at the opportunities in this market, it’s easy to spot the trends.
Around 100 years ago, it was only dried food or scraps. Then the tinned dog food revolution came along. If you got in at the beginning of this, you’d have made millions for about 50 years.
Around 10 to 15 years ago, we saw the first glimpses of luxury dog food. It’s taken a while to grow, but predictions show that this market could take up 28% of the dog food market by 2025. That’s huge – and if you were in early on you have a clear advantage.
How to get investors interested
Show investors information about a market that they may well know nothing about. Pique their interest and draw a picture of why it’s an interesting product or service that people need.
An investor may not be familiar with your market, so show me exactly how you plan to enter it.
My next question was: can the team execute? They were already set up with a small amount of infrastructure so it was easy to invest with confidence.
Show don’t tell
At Simpleweb we’re keen to see that business founders understand the difference between relative and absolute information when it comes to new markets.
Your absolute information is the setting – you can demonstrate changing consumer behaviour – and the relative information is how your business fits within the setting.
Tell me about the environment. If there’s a massive market in America, for example, I want to know which bit of it is growing, who your buyers are and what stage it’s at. Show how you’re in early and what steps you’re going to take to open it up in two years’ time.
It’s the difference between showing and telling. Don’t use your entire investment deck to tell me that there’s a huge opportunity – show me the opportunity and why it’s relevant at this exact moment in time.
Want to talk to Mark’s team aboMark is a cofounder of Simpleweb, who support new startups through small seed investments and forming innovative partnerships.