Niche Marketing Matters

Just be yourself—-I imagine that you have heard that advice all your life from friends, family, and co-workers. And it is true.

This weekend I watched 12 student teams from my New Venture Creation class at CSUF present their business plan concepts to an executive panel made up angel investors, bankers, and entrepreneurs. The small student teams each had 15 minutes to pitch their business ideas.

The teams were all prepared and were quick to describe the merits of their business ideas including value proposition, strong return on investment, and competitive advantage. Yes, they presented exactly as I had coached them to do.

But, guess what factor meant the most to this panel? Interestingly enough it was the authenticity of the presenters. The panel responded most positively to the students that were the most passionate and genuine about their ideas—this heartfelt enthusiasm trumped the ornately prepared spreadsheets and the overly scripted delivery by the more academically inclined students.

In reality, the panel responded to eye contact, smiles, and passion of real people who were just being themselves.

Another lesson leaned by Professor JJ.

John Bradley Jackson
© Copyright 2009 All rights reserved.

Venture Capital firms are out to make money—lots of money, if possible.

The first thing to know about VC firms is that they are investing other peoples’ money, rather than their own. The money comes from a variety of sources including insurance companies, banks, pension funds, university endowments, and corporate investment entities. The game is to out perform the stock market; risk comes with the investment but the goal is to not to lose the farm.

Thus, venture capital investments must meet these general criteria:

• The investment must serve a large, fast growing market. Niche markets are seldom big enough for a VC investment.

• VCs want to invest in companies in emerging markets rather than in mature markets. This is the domain of value added pricing and high profit margins.

• The company offering must have a clear competitive advantage. The offering must be truly unique and valued by the target customer.

• The competitive advantage must be sustainable. If the offering is easily copied or duplicated, it is not a fit for venture money.

• The management team must be top notch if not over qualified. Pedigrees count and only winners are hired. No second chances here.

• The offering must be scalable and repeatable. This favors products which can be built rather than labor intensive service businesses.

• The return on investment opportunity must be extraordinary—a 25-100 times return in 5-7 years is not an uncommon goal.

John Bradley Jackson
© Copyright 2009 All rights reserved.

Angel investors are people who have the money to help start ups. This help comes at a high cost in that the angel typically takes a stake or ownership position in the start up in the form of equity or stock ownership. For the angel investor, the investment is more than just a pure investment; often the angel has some connection with the start up and wants to be involved in the business.

Sometimes angel investors will band together with other like investors to form an angel network. This can bring more deal flow to the investor and help with the due diligence process, which is a fancy term for trying to figure out if the investment is worth the time and money to the angel.

Most investments made by angel investors are between $1Milllion and $2Million dollars. Smaller amounts will typically come from friends and family. Thus, it is common for the angel to invest as a second round or later stage investor once the business model is proven.

Angel investors want to make money. A common rule of thumb for angel investors is to consider investments which can offer a minimum 7 times return in 7 years. In fact, many angel investors only seek investment opportunities with a potential ROI of 15-20 times in 5 years—this high return on investment expectation will eliminate many start ups from an angel investor’s portfolio.

A savvy angel investor can bring many things to the start up beyond money. Often the angel investor brings experience and connections that the entrepreneur does not have. While these contributions are valuable, the angel money is very expensive. Beware.

John Bradley Jackson
© Copyright 2009 All rights reserved.