Scalable Economics

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How to use VC views on startup trends

Nic Brisbourne

Managing Partner @ Forward Partners

Investors are increasingly publishing their views on what's hot, what's not, emerging trends and what will happen next, especially around New Year time. This article from Fred Wilson is a good example: What is going to happen in 2017. These prognostications help investors sound smart, build their personal brands and attract the sorts of deals they want to see. But what's an entrepreneur supposed to do with this information?

Key takeaways

  • There's valuable information in VC predictions
  • Think deeply about what they mean for your business
  • Reflect what you have learned in your pitch deck - and do it with care
  • Avoid tagging yourself with all the latest buzzwords

In the blog post mentioned above Fred Wilson predicts that artificial intelligence, genomics and cyber security will be hot in 2017 and it doesn't take much to find a host of similar predictions from other VCs.

For founders and CEOs who plan on raising money, the first thing to note is that investors are your potential customers. You will be selling them equity in your business. Anybody who has ever made a career out of selling will tell you that understanding your customer is critical for success, and the good news here is that by sharing your predictions your investor customers are making that easier for you. Moreover, VCs are in the business of predicting the future. Literally. So we spend more time than most reading and thinking about where the world will go next. And we are helped, in no small measure, by smart founders who pitch their view of the future.

You should read what VCs write and ingest it carefully, but remember it's not gospel. As Fred Wilson notes in his past predictions he has been right about half the time. That's great for him because he only needs one in three of his investments to succeed, but you have all your eggs in one basket and so the stakes are far higher. Remember also that you operate at a more detailed level than your potential investors. Successful VCs are good at identifying trends with legs and picking the entrepreneurs who have the best explanations of how they will exploit them. Many can talk knowledgeably to how that will work at a reasonable level of detail but that is always less detail than you will need to execute successfully.

The best founders take this information from VCs and form their own view on what will happen. Then they adjust the plan for their company accordingly. They don't dismiss information that conflicts with their business too quickly, but at the same time they don't embrace everything that's said or written either. Filling your pitch deck with empty buzzwords is one of the quickest ways to lose credibility. Sadly, it's also one of the most common.

Once you have read predictions from VCs; reflect deeply on what they mean for your company. Then it's time to make sure that your investor presentation reflects your thinking.

Core

If one or more of the trends investors are talking about is core to your company, then you should link the trend to business benefits. For example our partner company Thread.com uses artificial intelligence to improve the personal stylist service they provide to customers. Their machine learning results in better recommendations, higher customer lifetime values, reduced costs through higher stylist:customer ratios and competitive advantage versus new entrants who don't have their data and accumulated learning.

Then find a way to explain what you are doing in a way that's easy to understand. Making the complex simple is incredibly persuasive. It makes your audience feel clever and enables them to repeat your messages with ease.  If you can pull this off, it’s a great way to get investors pitching their partners about your company.

Think about dedicating 2-3 slides of a fifteen page deck to the topic. You’re in a hot space and you should milk it.

Periphery

If one or more of the trends investors are talking about is something that you can take advantage of in the future but not yet within reach: resist the temptation to oversell. A common example is to plan to use machine learning to improve personalisation once you have hit scale. That's great, and is a valuable part of the plan, but it belongs on a single page towards the end of the pitch deck. Good investors will be happy it's there, because extra upside that makes a deal more attractive, but they will know that their investment will succeed or fail based on the elements of the plan that get you to scale in the first place and those will form the basis of their investment case.

Not relevant

Finally, if none of the trends that investors are talking about are relevant to your company then stay true to yourself and don't mention them. Far better to work on understanding and explaining the trend you are exploiting than trying to crowbar something into your plan that doesn't belong there.

You should  have a thoughtful answer to questions about why the trends aren't relevant to you but stop short of putting them in your deck. That would look defensive.

Going forward you should make sure you stay current. The more a trend is at the core of your business, the more you should become an expert - writing articles and speaking at conferences and relevant events. Becoming an expert brings many benefits, but one of them is definitely that investors interested in your space will gravitate towards you. Which is a nice segue to my final (and perhaps most obvious point) which is that when you are fundraising it makes sense to target VCs who have written about a trend you are exploiting.

Nic Brisbourne

Managing Partner @ Forward Partners

Nic is Managing Partner at Forward Partners. He has 15 years experience in the venture capital industry and prior to founding Forward Partners in June 2013, was a Partner at leading venture capital firm DFJ Esprit. He has worked and invested in London and Silicon Valley, leading over 25 investments and enjoying a number of successful exits including buy.at (acquired by AOL for $125m) and Zeus Technology (acquired by Riverbed for $140m).

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