We had a couple interesting entrepreneurs present today, but they both fell into a trap that snares many entrepreneurs pitching institutional VCs. They both built their businesses from the ground up, based upon market/customer requests — that part is super! However, they both equated early customer interest with big opportunity — that’s…well…less than super.
Demonstrating customer interest jumps an entrepreneur ahead of all the idea-on-a-napkin entrepreneurs who just assume customers will flock to their big idea. However, when institutional investors ask questions about the size of the opportunity, including market size and scalability, referring to current customer interest really doesn’t address the question.
This issue is particularly acute with entrepreneurs who have been successful raising angel money because some angels equate the two, or worse, just get excited about the early customer interest (forgetting about how big the business can be). Those entrepreneurs often repeat the mantra of “customers love our product” when the VC’s real questions are how many of those customers exist, how many competitors will enter your market when they see how lucrative it is and how will you scale early customer interest into a business that sustains itself — HOW BIG CAN THIS BE!
Understanding the difference between these two concepts, and demonstrating it during VC Q&A can really aid a presentation…