“I’ve Never Heard Of That Before”
By Dave Shen
In recent weeks, many people have asked me what I look for in startups today. My leading answer has become:
“I’ve never heard of that before!”
As I glance at the flow of accelerator demo day lists and what gets funded on popular news outlets which cover startups, my brain files away stuff that I see. Startups that do this, do that. I may not remember their names but only what they work on or do.
But every once in a rare while, I’ll meet a startup working on something that I’ve never heard of before. I’ll look into what my brain has filed away and can’t even find someone working in a space that is close to it. THis is what gets me excited — people working on projects with no competitors.
Back in the old days of venture capital, I heard that lack of competition was something they all looked for. It seemed very important back then as a way to maximize the odds of success. Certainly the world was less filled with startups of all sizes and shapes, which is very unlike today.
However, in today’s world, I see people with multiple competitors get funded all the time. There seems to be the hope that maybe you invested in the winner and not the other guys. When I look, I just don’t know if the startup I’m talking to is going to win, versus the other guys. It just seems too risky to me.
The world is way too filled with things for people to do, or choose from. This affects both consumer and B2B startups. Traction slows down and takes too long for startups to get to break-even or good enough metrics for the next round. When a product or service has other people working on the same or similar things, customers need to process “blur” and need to decide on whether they want to spend time to determine whether something truly is better or not. In my experience, most people just bail — and they wait until enough other people use something before they will even try it.
The only way to combat this is to present something to a customer that they have never heard of before. It must be so unique that the time to process is minimized. That gives them a leg up in acquiring customers. If there is no one else shouting/touting the same or similar product, then they can gain some initial traction without interference from others. They can pull out ahead before someone else gets the idea to build a competitor.
Some of you might think that is nearly impossible to find someone working on a product or service with no competitors. I think that is mostly true; the easy pickings are already being worked on many times over. And yes it’s really hard and takes a lot of patience to wait for an encounter or it’s a lot of work to go looking for them.
It’s the big markets that have not been touched by and disrupted by new technologies that I’m looking for. A lot of that is in unsexy markets, things that definitely that newly graduated college kids will not have been exposed to. Some of them require a ton of time to dig into and understand. Some of them are so unsexy that it requires real effort to fall in love with!
Unicorn hunting is fun and all, but I prefer to look for my unicorns in places where hunters are not. My first attraction to a startup is most likely the realization I have never heard of their product/service before in an industry that hasn’t been worked on yet. Then I rally the forces and dive deep from there.
Originally published at launchcapital.com.
