For the world of venture capital, fall arrived long ago — a fall in funding. In the first quarter of 2016, U.S. venture investment dropped 30 percent from its $17.3 billion peak in the second quarter of 2015. Venture capitalists are now focused on protecting their investments; and with $5 billion less up for grabs, competition for the remaining funds is fierce.
Related: Elite Venture Capital Firm Andreessen Horowitz Looks for These 3 Things in Startups
With lower funding, entrepreneurs who want a slice of the (shrunken pie) must prove to VCs that they’re worth the dough. Here are some suggestions how.
Product-market fit wins investments.
In today’s cash-strapped funding climate, investors are looking for one thing above all else: product-market fit. According to Marc Andreessen, founder of Silicon Valley venture firm Andreessen Horowitz, that means being in a strong market with a product that can satisfy.
To be clear, you don’t have to provide the best solution for that particular market — every product has room for improvement. But, product-market fit requires your product to solve user needs as well as, or better than, the products of your competitors do.
Sometimes it’s clear when your product has found its market match: Demand outpaces production, the web raves about your “hot new thing” and sales can’t hire staff quickly enough. Other times, though, it’s not so obvious. To remove the guesswork, web analytics firm Kissmetrics recently debuted Survey.io. The survey’s key question for measurng product-market fit is, “How would you feel if you could no longer use [X product]?”
If at least 40 percent of respondents representative of your market answer “very disappointed,” then you can bet your product has found a fit. So, be sure to survey at least 250 accurate users, especially if you’re seeking $1 million or more in seed money.
If users tell you they will miss your product, then you’re ready to meet VCs, right? Well, not quite….