Lately I’ve been spending most of my time talking to investors. More pitches to VCs equals more constructive feedback. It would be a shame to keep it all just to myself, so I’ve put together a list of lessons learned, which hopefully will help you on your journey, too.
Most VCs look at four main things:
- market size.
A couple more investors also touched upon:
- unit economics;
- 10x value proposition.
So let’s look at them one-by-one.
1) Team: if you are an “exited” entrepreneur, former VC or an ex-Googler, your barriers to VC capital are much lower that for the rest of us, but there is a way around it.
If you can actually build the damn thing without VC money – you must have the right team. Splento doesn’t have any senior Facebook managers or Google VPs of Marketing as co-founders, but we have managed to test dozens of hypotheses without them and build not just an MVP, but a fully functioning product, so the team is solid and this has never been raised as an issue.
2) Traction: grow 100% per month for 12 months and VCs will line up to invest. But reality is a bit uglier. There are only a few sectors where this growth is possible without funding.
Splento’s 30% month-on-month growth is strong and solid, so that has rarely been questioned by investors either. Furthermore, in the US a competitor has recently raised $2.5mln even without a working prototype, so we must be doing something right.
3) Defensibility: if what you are doing is not defensible, there is no point in investing in you. Why bother, if someone with more money could come in, copy your model and get all of your clients or suppliers and leave you in the dust? This point has come up on several occasions.
By default very few investors have deep understanding of the creative industry, as no company has ever raised enough capital or media buzz to land on the desks of senior partners. What the insiders understand that outsiders don’t – is that this industry has network effects, like any other marketplace – the more choice we provide, the more clients come to us and the more they are likely to stick around.
When all you do is provide headshots – clients will go somewhere else and you lose them. However, when they can get everything from team headshots, to conference photography, to crowdfunding videos, to family photos – all in one place, anywhere around the world, at fair prices, with professional customer support and guaranteed quality and fastest delivery of a ready product, and one place to store all that – it becomes very sticky.
We have proven it with our Cohort Analysis and if you can show that clients stick with you and with time spend more time and money with you, you may have an argument to parry that point, too.
4) Market Size: if you are in Healthcare or FinTech, investors won’t have any problems understanding the size of the opportunity. However, if you are in a niche market – in our case $100bln+ niche – that no one has disrupted before and that is dominated by SMEs and freelancers, you may have a more challenging task.
For us – many investors simply don’t see the market as large enough. They think back to when they used creatives last time and realise it was at their wedding, it cost them a fortune, they got their photos 6 months later and they conclude the industry is broken and small.
However, our cohort analysis shows that over 50% of B2B clients come back within 18 months (and spend more money) and some sub-segments book on a monthly basis.
You don’t need to go far to see the prevalence of professional visual content. Just stop what you are doing and look around: you will see at least 10 images or videos done by freelancers for a marketing brochure, a pull up banner, websites, ads, etc. We are surrounded by professional visual content – all done by freelancers!
For us the difficult part is the paradigm shift in investors thinking from:
a) visual content as something you do for family purposes and something that will be eaten up by phone cameras to
b) the creative industry is $100bln+, growing fast (both supply and demand side) and millions of businesses struggle with their professional visual content.
5) Unit Economics: for us healthy Unit Economics is key, however I’ve noticed that it is not the top priority for most VCs. We only had this issue raised once. However, with our high LTV, juicy gross margin, good retention rates and CAC – it has has never been a problem.
6) 10x Value Proposition: this one is quite tricky.
I love numbers and probabilities, metrics and OKRs, so I am a strong believer that one should judge opportunities purely based on numbers, but unfortunately even professional investors tend to judge opportunities based on their own experiences.
Would I ever use SkyScanner? Have my friends used BlaBlaCar? Can I imagine my daughter using SnapChat?
We had this issue raised only once. The feedback from investors was that we are a very sound business, but they didn’t see a critical value proposition that we do 10x better than anyone else, like Uber’s get a cab within 5 minutes.
At Splento we deliver your professional visual content faster than anyone and can do it on a consistent basis worldwide to thousands of clients a day. We believe this is the 10x improvement that is very difficult to copy and that sets us apart. We have more than 290 positive reviews on TrustPilot (www.splento.com/reviews) and most of them complement the speed of delivery (in addition to great service, amazing customer support, wonderful photographers and fair prices).
For example, today 11 Splento photographers are shooting an amazing event at Tobacco Docks for CogX and photos are being delivered live as I type this post: http://splen.to/CogX18 These professional photos will drive more social media buzz and press mentions for the client and bring more attendees and sales for next year.
We believe it’s never just one thing – it’s always a combination of various factors. I use Uber not because I can get a cab in 5 minutes (Kabee, Grab, Taxify and everyone else can do the same thing), but because I know the quality of cars and drivers are consistent, prices are fair, I get a receipt for my business trips and I get the same service wherever I go. Other people have other priorities.
The fact that “Profession Visual Content Delivered The Next Day” does not sound like a 10x improvement for a particular investor, doesn’t mean that it is not for millions of businesses around the world, who usually wait for weeks to get their ready product.
Couple that with professional customer service, availability of photographers on demand (when you need them and not, as is industry-standard, when photographers are available), professional quality or money back guarantee and you have a robust business model that is more akin of Amazon for Creative Services, than Uber for Professional Photographers.
To sum up: make sure you’ve got team, traction, defensibility, market size, unit economics and 10x value proposition covered and I’ll try and address market size in more detail and see if we get different results.