Part 8/20 - Twenty Questions You Will Be Asked By Venture Capitalists (If You Get That Far)

By Laurence K. Hayward

This is part eight of a twenty part series on this topic.

8. Who are your competitors?

You've heard the dictum "never say never." When answering the above question, the maxim might well be "never say none." There is more to the question than may first be evident. Certainly VCs are interested in learning about the extent of competition your business will encounter and how you will distinguish your company. But, they also might be assessing your maturity as a businessperson.

The answer "none" is almost always incorrect because a business usually has at least two competitors: substitutes and apathy. Potential buyers might use a substitute even if that substitute doesn’t appear as effective as your product (e.g. paper/pencil versus keypad). Or potential buyers could simply "do nothing" and continue to function without the product. Finally, if the market you are pursuing is really as attractive and large as claimed, it is usually difficult to accept that there is no competition at all.

If the investor is aware of competitors that you have not considered (as many have researched particular segments independently), he or she will lose faith in your business assessment skills.

One way to stay abreast of competitive offerings is to keep active with various trade associations and industry groups. It can also be helpful to attend the relevant venture capital forums, or at least review the publications to find out who is getting financed. Venture Wire and Venture One (now Dow Jones) provide resources to help you track venture financings – many offer database-type products that will allow you to perform searches and queries using keywords that pertain to your offerings or industry.