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In every pitch deck there should be a slide about competition.
danger If a company says there is no competition it may be a red flag that they don’t understand their customers or their market. If you were the inventor of the first car, for example, you might have been tempted to say that there was no competition; but in fact the competition was horses and carriages and trolleys and trains and bicycles and human feet.
founder Most entrepreneurs know that they have to be better than the competition or at least differentiated to get funded, but their products are early and as a result are often lacking in features. This creates a temptation for founders to be dismissive of certain competitors or to leave them out of the competitive slide in their pitch altogether. They shouldn’t—again, these are key indicators of how well a founder understands her market, customers, and product. Evaluating competition is very company-specific, but the following are some general guidelines for angels to follow when doing diligence on competition:
Start with the list of competitors provided by the company and look at those products closely.
Look at each company’s website. Who are they selling to? How are they positioned? What do they cost?
If it’s possible for you to try out their product, do so.
Read reviews of those products.
You may even want to call up a salesperson from one of the competitors to hear their pitch and their counterargument to the “weaknesses” identified by your entrepreneur.
Do your own search for competitors.
Google the type of product or pain point (try searching, “best solutions to X” or “comparison of X-type products).
When you discover new companies not mentioned by the entrepreneur, bring those products to their attention and judge the reaction. If the entrepreneur was really unaware of clearly competitive products (unless they are very niche) that might be a red flag that they have not done enough homework on their own market.
Diligence on Product and Technology
At a minimum, you should get a thorough demo of the company’s product (if it has one). If it is a product that you can use yourself, then use it as much as you can even if you are not the target customer. Is it elegant and effective or confusing and buggy?
It is not uncommon for an entrepreneur to show a very polished demo of their product using a very specific scenario, and it may turn out that the product only works elegantly under quite specific constraints.
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