If you intend to secure external funding for your startup, you may consider seeking investment from angel investors. Angel investors are affluent individuals who provide capital for business startups in exchange for a share of ownership equity.
Angel investment serves as a first round of financing following initial seed funding from family and friends. Additionally, angels are often successful entrepreneurs, business executives, or attorneys who can offer management, leadership, and guidance to your startup.
This series of posts aims to provide insights into the criteria angels consider when investing in a startup. These posts will assist you in understanding an investor’s perspective and assessing whether they would be willing to invest $100,000 in your business. Utilize these posts as a tool to evaluate your business’s strengths and weaknesses.
Regarding funding options and methods, please refer to my post “Funding Your Start-up The Jugaad Way” for alternative and potentially less costly ways of raising capital. Regardless of your chosen funding path, it is imperative to prepare a well-crafted investment pitch that can significantly impact the success of your startup launch.
#9 Creating Competitive Advantage
In the ideal scenario, you’d have invented a groundbreaking product, unlike anything the world has ever seen, with a pending patent, an exclusive license with Facebook, and personal financing from Warren Buffett for your $100 million startup. That’s a true competitive advantage. However, in reality, investors seek something that makes your company distinct and compelling.
Product differentiation can manifest in various forms, such as leveraging new or existing technology (like WhatsApp), introducing novelty (like a grocery cart with a built-in cooler), delivering exceptional design (think of a children’s toy or a new fashion line), or combining these elements (like Tesla). It could also involve offering a unique level of service that hasn’t been experienced before.
You don’t necessarily need a patentable product or something revolutionary for the world to attract investors. What matters is something that sets you apart from the competition, whether it’s existing or future, and a way to stay ahead of them.
Success can be achieved through a concept we call re-innovation. This involves analyzing an existing market, particularly one that has remained unchanged for a long time, and determining if a product revamp could create value for customers and a competitive edge for your company. For instance, you could put a product twist on a saturated market, create a niche within a homogenous market, or revive an old and stale market with something fresh. This approach often provides a solid foundation for a startup idea, as long as the “investor questions” and marketing fundamentals are well-addressed.
Investors want to know several differentiating aspects of your business. Namely, can you identify your potential competitors? Are there any genuine barriers to entry that will help your startup maintain a competitive advantage? What proprietary features set you apart from existing or potential competitors? How will you prevent other companies from capturing your customers with a similar offering?
Attributes that convey competitive advantage include:
- Patents or copyrights protecting your intellectual property?
- Exclusive marketing and distribution relationships?
- Strong branding (e.g., compelling story, compelling marking material?)
- Exclusive licenses?
- Access to scarce human resources (i.e., knowledge base, skills)?
- Access to hard-to-find raw materials?
Finally, investors will want to be assured (and so should you) that you aren’t infringing on someone else’s patents or trademarks. Have you conducted an exhaustive search to ensure this? Often, it’s best to hire an attorney for this undertaking. Remember, you must be prepared to outperform competitors in an existing market. If your startup has an innovative product in an emerging market, how will you counter the competition that will swiftly and aggressively follow? These are the challenging questions that demand compelling answers and a well-defined strategy.
– Tyler, Founder and Principal Consultant
Thrive Venture Consulting—connecting people and ideas.