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50 questions: How does a VC consider competition?

By on June 2, 2011

Together with Nic Brisbourne of The Equity Kicker / DFJ Esprit, I am writing a series of 50 questions you should ask when raising venture capital. We expect the series to run for a year, after which we will collate the answers into a book. We view this as a collaboration, so please comment to help make this series even more useful.

This is #24 in the series

How a venture capitalist considers the competition for a potential investee company is critical to whether they ultimately decide to invest.

As Nic says “Generally speaking, VCs are looking to invest in the market leader, or in a company that can become a market leader in their segment, as defined by revenue or occasionally internet traffic.”

(This comment is a good illustration of why not all companies are suitable for VC investment.)

The heart of the advice is that you need to be honest about your competition, and where your strengths and weaknesses lie. There is no point in hiding the truth; any half-decent VC will sniff it out during due diligence. Better to show that you understand the market, and know how you are going to win given your particular set of strengths.

You can read the full article over at the Equity Kicker.

Hungry for more? Go to the 50 questions homepage for more insights into venture capital.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: