Invest in Experience or Potential?
If you’re a first-time entrepreneur seeking investment from Victory Square Ventures, are you at a disadvantage? The short answer is yes.
From historical experience, the first idea that an entrepreneur has is an idea that they’re gravitated towards because of a challenge or personal struggle that they have first-hand experience with. Because the first startup idea you have is one that is closest to you, it is most likely a consumer problem in your day-to-day life.
You’ll find that the most successful startups are where entrepreneurs are solving problems or challenges in their professional landscape — which are more geared towards B2B. Not to say that B2C opportunities aren’t fruitful, they often fall in a one in a million chance of being successful, rather than a one in a hundred chance of success with a B2B product.
With a first time entrepreneur, you know as an investor that the entrepreneur typically does not have the network or access to resources, and the knowledge of the hardships and challenges that they will face ahead.
We always say that it is with the 2nd or 3rd startup that the entrepreneur has the greatest chance of success — and by 2nd or 3rd startup, I mean they’ve gone through the process of attempting to build a business. Whether they were successful and exited, established an ongoing business that requires low maintenance, or even just having built a startup that crashed and burned — they as founders went through the ups and downs that come with building a business. (Note that registering a domain name and failing to find a technical co-founder to build your idea doesn’t really count as your first startup).
These entrepreneurs will typically have, ideally, incubator/accelerator experience or have worked in co-working spaces where they’ve built a solid network of mentors and advisors that they can gravitate towards. They will also have knowledge of and access to resources that are available to them — whether it’s government grants, employment/student programs, or access to discounted or free online tools like the ones we offer at Launch Academy, they have the knowledge of at least knowing where they need to go to access those resources. They will also have the experience and knowledge of the warning signs of problems they’ve experienced in the past with their 1st or 2nd startups.
Ultimately, it comes down to how the entrepreneur thinks.
With their 2nd or 3rd startup idea, they’re thinking of how to tackle a problem on a larger scale — which makes them a better fit for venture funding. More often than not, the problem would be something they’ve had explicit experience on.
They will be able to identify how to develop a pain-killer solution, rather than a vitamin. By that, I mean their product is a solution that actually solves the problem or substantially alleviates the pain, rather than something that eases the pain (or superficially addresses it) but doesn’t offer a long-term solution. Better yet, it is a reoccurring solution someone would continuously pay for into the future.
With the experience, comes the foresight of identifying: is this a killer product?
Is this something that makes a difference on a day-to-day basis that people would gravitate towards, and can I generate repeatable customers with this solution, or can I generate strong metrics and data that VCs and investors would find valuable?
In today’s globally competitive landscape, people are realizing that it’s not just about users. You need to show revenue — ultimately, every business needs to generate profit. Is your startup just a data play that is aggregating information that will be valuable to someone else — are you positioning your startup as an acquihire or quick acquisition for market information? Or can you really justify yourself as a true on-going entity that can generate revenue or an anchor business in an industry and/or ecosystem?
Many times you will see first-time entrepreneurs jump into their idea, but struggle at gaining traction or customer validation, then realize how hard it really is.
They’ll go back to the workforce to replenish their savings and their sanity, because let’s face it building a business, successful or not takes a toll on you mentally and physically. But if they’re true entrepreneurs, the thought of mistakes made and opportunities missed in their first startup will start to eat at them, and they’ll want to jump back in with a new startup idea or join one with someone from their new network.
That’s what we want to see — those that have fallen down, but got back up and want to become an entrepreneur again. Others will get a sour taste in their mouth and feel that it’s not worth jeopardizing their money, family’s future, and make that decision to not be an entrepreneur. But for those who are on their 2nd or 3rd startup, you will see that they know what to expect with the journey ahead and that they will fight for their startup.
With all of this being said, I work with first-time entrepreneurs on a day to day basis through Launch Academy. They may not get my money, but they do get something far more valuable: my time and attention. For a better understanding of what I mean by this, please check out my previous blog “Ask for money, get advice; Ask for advice get money twice”.
