One of the most annoying things for an entrepreneur to hear, and one of the hardest things for a venture capitalist to navigate, is the “past is prologue” doubt. By that I mean: “your idea failed before, so why will it work this time around?”
Given that most Web 2.0 ideas were conceptualized, attempted, and failed, during Web 1.0, this is a common question. So if you are thinking about raising money, it is worth spending some time on a compelling answer to “why now?”
Here are a few categories and examples with which to examine the question:
- Culture & behavior: have people changed how they think about or use a particular technology? Examples: privacy and sharing concerns; willingness to use a payment processing method online; media and entertainment consumption habits; shopping habits; etc. Your answers in this category are backed up by customer development and data from the next category.
- Adoption levels: has the “addressable market” significantly changed since previous attempts, either for a behavior or key platform? Examples: broadband penetration; phones with *good* mobile browsers; Paypal users; number of webmail accounts; active Twitterers; SAP’s installed base; etc.
- Technology: have technology advances significantly changed the feasibility and economics of the business? Examples: PC or mobile processor speeds; hard drive size/cost; the LAMP stack; cloud services; Facebook Connect; GPS in phones; open sourcing of a key infrastructure pieces; etc.
- Execution: this is sometimes the most relevant, but I’ve found that VCs dismiss it a little too easily, especially if they were not operators themselves. Still, you want to understand why previous teams failed: wrong features; terrible marketing tactics; wrong initial customer segments; poorly capitalized; wasted cash before product-market fit; etc. Just don’t make anything up.
Obviously you’ll prioritize your list rather than bludgeon a potential investor with every data point, but you want to take the time to understand the past and present. If an investor wants to drill in further, you want substance.
Of course, with many investors, the only true way to effectively de-risk the “past is prologue” objection is to prove your case through traction. Hence the reality that for better or worse, “seed capital” for Web startups has shifted to later in the process, at least for companies started by founders without big exits already under their belt.
I am co-founder and CEO of
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One other thought… Customers. nnThere are essentially 4 risks to overcome in any startup.nn1) Founders (can they play nice together)n2) Technical (build it)n3) Market (is it ready)n4) Financial (money to scale)nnAssuming this time around that 1, 2 and 4 are there. What remains is market acceptance. The way around this one is customer validation.nnVC’s are not your customers (they don’t buy your services) Customers who have a real problem that you’ve clearly identified and who are ready to buy solve the problem and mitigate the risk.nnAlso one thing I learned early on was also infrastructure. Sometimes you have to wait until it’s in place before your customer becomes aware of the problem that you’ve solved for them.
I wrote this post quickly, but was placing “customer development and validation” across behavior, adoption levels, and execution buckets. Of your list, I was putting 1,2,4 in the “execution” bucket. I wasn’t really trying to write up a roadmap to success, but rather a framework to think through the question.
Agreed. Just my take that’s all. nnThe one that did surprise me though was infrastructure. What my view is vs. the customer view was not always in alignment. What I learned this time around was to look at all of the components along the value chain/ecosystem and ensure that the infrastructure was also in place to support the growth and illustrate that a real problem now exists.nn
One other thought… Customers.
There are essentially 4 risks to overcome in any startup.
1) Founders (can they play nice together)
2) Technical (build it)
3) Market (is it ready)
4) Financial (money to scale)
Assuming this time around that 1, 2 and 4 are there. What remains is market acceptance. The way around this one is customer validation.
VC's are not your customers (they don't buy your services) Customers who have a real problem that you've clearly identified and who are ready to buy solve the problem and mitigate the risk.
Also one thing I learned early on was also infrastructure. Sometimes you have to wait until it's in place before your customer becomes aware of the problem that you've solved for them.
I wrote this post quickly, but was placing “customer development and validation” across behavior, adoption levels, and execution buckets. Of your list, I was putting 1,2,4 in the “execution” bucket. I wasn't really trying to write up a roadmap to success, but rather a framework to think through the question.
Agreed. Just my take that's all.
The one that did surprise me though was infrastructure. What my view is vs. the customer view was not always in alignment. What I learned this time around was to look at all of the components along the value chain/ecosystem and ensure that the infrastructure was also in place to support the growth and illustrate that a real problem now exists.
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