[Matrix Moments] Should it matter if your VC backs a competitor?
If you're a founder and your VC backs your direct competitor, it may come as a shock. However, if you’re thinking about this, here's a thread that can put things into perspective:
- Entrepreneurship is all about the business of stacking odds, and generally, the odds are stacked against startups. So, if your VC backs your direct competitor, that can be a problem.
For founders, it's increasingly hard to figure out what/who exactly is the competition and therefore, at Matrix, we have decided that rather than focusing on the market that's being targeted, instead, we’ll focus on the approach to the market, aka, the GTM strategy that the founder has in mind.
- The questions we think about is: does this founder have a unique GTM and approach? Is this GTM overlapping with another company's GTM? If yes, we consider that company as a direct competition and will not invest in it.
- If there’s more than 20-30 percent of a clear market overlap at entry, we wouldn't invest. However, the key deciding factor for us is whether the two companies are going to compete for the exact same share of wallet of the exact same customer in the exact same way.
- If that's the case, the VC's funds will be competing against each other and it doesn't make sense to invest in both companies.
- However, the best founders don't have to worry about it. In their view, if their VC isn't going to fund them, then maybe another VC will.
- In the long run, it doesn't matter. A founder can’t win based on competition but on the basis of their customer and who's doing a better job in catering to the customer.
ICYMI, you can also watch Avnish Bajaj talk about it here.
YourStory’s flagship startup-tech and leadership conference will return virtually for its 13th edition on October 25-30, 2021. Sign up for updates on TechSparks or to express your interest in partnerships and speaker opportunities here.
For more on TechSparks 2021, click here.
Applications are now open for Tech30 2021, a list of 30 most promising tech startups from India. Apply or nominate an early-stage startup to become a Tech30 2021 startup here.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)