You're evaluating startups in a crowded market. How do you choose the standout performer?

Choosing a standout startup in a crowded market involves looking beyond the pitch. For startups, I always say, "It's not you, it's your neighbor." What I mean by this is that a rejection might not reflect your company's potential but could be influenced by the timing of who else is in the funding queue. It's not always a direct comparison. If you are a VC assessing a standout performer, we recommend evaluating how a startup differentiates itself from those pitching before or after them. We look for a unique value proposition, strong team, and evidence of market traction. I recommend analyzing the business model's scalability and how well it addresses unmet needs. This holistic approach helps identify true standout performers.

Great insights. I agree that the founding team is critical. From my experience in a previous startup, having a diverse skill set helped us tackle challenges more effectively. One point I'd add is the importance of resilience. We faced multiple setbacks but our ability to adapt and stay committed was key to our progress. Execution is indeed vital. A strong vision paired with the capability to implement it can drive success.

Assess the strength and cohesion of the startup’s team. Look for complementary skills, relevant experience, and a track record of working well together. A strong, dynamic team with a clear vision and the ability to execute is often a key indicator of a startup's potential for success.

The key factor in investing in early-stage companies is finding a founding team with strong execution skills in both management and tech. These companies may not have a product, customers, or traction yet. Essentially, the investment bets on the team's ability to finish strong. Despite potential pivots, ups & downs, and challenges, a strong team can execute their vision, solve problems, & stand out. Successful investors attribute their success to finding the right team, at the right place, and at the right time. They look for coachable teams that adapt easily to market changes. While many have great ideas, only those with strong execution and technical skills can bring ideas to life and scale quickly to outcompete others.

To complement traditional evaluation criteria like team dynamics, market analysis, and product innovation, it's crucial to assess a startup's ability to adapt and pivot in response to market changes. This means evaluating the founder's flexibility and willingness to adjust their business model, product offerings, or strategies based on customer feedback, competitive pressures, or unforeseen events. Startups that demonstrate agility and adaptability are more likely to thrive in a crowded and dynamic market, making them a more attractive investment opportunity for venture capitalists.

When evaluating startups, the team is 90%. Imagine, a small tech startup led by long time friends, an experienced coder, and a business strategist. Their complementary skills made their company thrive where others floundered. One day, they faced a massive pivot—shifting their product focus entirely. Many doubted them, but their blend of technical know-how and strategic foresight guided them through. This balance of skills, adaptability and true connection is crucial. As an investor, seek teams with action-oriented, focused dynamics. Ideas are plentiful, execution rare. Build portfolios based on people, not just ideas.

A good founding team has complementary skills, covering all necessary areas of the business. They share a unified vision and goals, maintaining high levels of trust and effective communication. Passion, commitment, and the ability to adapt and find creative solutions to challenges are also essential.

Conduct a thorough analysis of the market to identify the startup’s unique value proposition. Evaluate the size of the addressable market, competitive landscape, and barriers to entry. A startup that demonstrates a deep understanding of the market and has a clear competitive edge is more likely to stand out and succeed.

A crowded tech startup market can be overwhelming. Find a hidden gem: Differentiation: Don't just pick a "me-too" product. Identify a unique selling proposition (USP) that differentiates them from the competition. Team Strength: Evaluate the founders' experience, domain expertise, and execution ability. A strong team is crucial for navigating challenges. Go Beyond the Pitch: Deep dive - analyze their financials, market research, and tech stack. Don't rely solely on polished presentations. By focusing on niche markets, unique solutions, strong teams, early traction, and a thorough due diligence process, you'll be better positioned to identify the startup with the potential to rise above the crowd.

Market opportunity is a crucial factor when assessing an investment. Companies targeting a very large market segment face more powerful competitors, while those in niche markets have fewer competitors but a smaller market share. If a company can differentiate itself in a large market, like Uber or Tesla did initially, there's potential for it to become a unicorn. A company in a crowded market aiming for a valuation over $1 billion can yield an ROI of over 1000%, whereas investments in niche markets usually offer an ROI between 200-500%, with many being even lower. Many VCs seek companies capable of achieving over $100M market share within 5 to 7 years, which is why a convincing business model and go-to-market strategy are also crucial.

A crowded market isn't necessarily a deal breaker for a start-up, but it does present significant challenges. Success requires clear differentiation and a unique value proposition that sets the start-up apart from competitors. For example, in the automotive sector, a new company could stand out by focusing on innovative electric vehicle technology with superior battery life and autonomous driving features that surpass current offerings.

Examine the startup’s financial health and business model sustainability. Review their revenue streams, profitability, cash flow, and funding history. A startup with sound financial metrics and a scalable business model indicates strong potential for growth and stability in a crowded market.

Insightful point on financials. From my experience, realistic projections are crucial. I once saw a startup fail due to overly optimistic revenue estimates. It's also essential to monitor the burn rate closely. During my tenure at a tech startup, we managed to extend our runway by adjusting spending priorities. A well-managed financial strategy often indicates strong leadership and a higher chance of success. This balance can make a significant difference in the early years.

The ideal burn rate for a start-up varies, but generally, it should allow the company to operate for at least 12 to 18 months without needing additional funding. In early stages, the burn rate might be higher due to investments in development and market entry, while during growth phases, it should be controlled and aligned with increasing revenues. Ultimately, careful financial management and regular adjustments are crucial to maintaining a healthy burn rate.

Muy relevante que se enfoque en un sector en específico y en especial examinar si previamente existe una base humana, proceso que se automatiza sin proceso manual previo tiene sorpresas

Talking to your customers is critical, I once had to deliver a turnaround for a business who because they had made a sale to a multinational were convinced that their positioning was spot on but could not understand why they were not selling to anyone else. It turned out when I spoke the the major client that they were using the product for a totally different purpose. After further investigation with potential clients , I re-aligned the product positioning and sales took off Always talk to your clients particularly after you have sold to them they can be an invaluable resource

The customer feedback is a super important validation for the business. Having insights on customer satisfaction, preferences, and behaviors, it validates whether a product or service effectively addresses target market needs. When customers pay and use the solution consistently over time, it signifies a market fit and lays a solid foundation for sustainable growth.

Great point on customer engagement. In my experience, customer feedback can be a goldmine. At a previous startup, we pivoted our product based on user suggestions, which significantly boosted our growth. Enthusiastic customers often become brand advocates, driving organic growth. I once worked with a startup where loyal users played a key role in our marketing efforts. Listening to customers and adapting accordingly can set a startup apart from its competitors. This engagement is often a predictor of long-term success.

An exit strategy is key when assessing startups in a saturated market because it offers a clear plan for realising the return on investment. It details how and when investors can anticipate a return on their investment, which is especially important in a saturated market where differentiation is crucial. The standout performer in such a market is usually a startup that not only has a unique value proposition but also a well-defined exit strategy. This could be through a merger, acquisition, or Initial Public Offering. The exit strategy should be in line with the startup’s long-term objectives and market dynamics, offering a realistic and achievable route to profitability.

Investors seek ROI and typically expect an exit within 5-7 years. When evaluating a startup, it's essential to consider the potential exit strategies: acquisition by a large corporation, a merger, or an IPO. Ask founders about their envisioned exit to gauge their confidence and long-term vision, even though their projections might be biased. Many reputable VCs go a step further; after identifying an exit strategy, often through acquisition, they may seek opinions from large corporations they have relationships with to assess potential future buyers. Creating different exit scenarios and presenting them to stakeholders can boost confidence and help your team estimate the future capital needs for each potential path.

Desde el punto de vista de la inversión, independientemente de la solución propuesta, no se debe olvidar que el objetivo es la expectativa de alta rentabilidad relacionada al alto riesgo. La innovación y tecnología son, desde ese punto de vista, elementos que permiten conseguir los mútiplos esperados, pero no en sí mismo objetivos. Una estrategia de salida debe ser parte de la carta de presentación de cada fundador de una startup, considerando el objetivo de la inversión.

I look for companies that will make an impact and change their industry for the better. Just doing something new that will make money is not exciting enough. I want to see vision to make a positive impact as they succeed. Let’s make money while doing good. That’s why I invest in cleantech.

Our main points of difference to our peers is: • The time we take to understand and shape narratives • Our understanding of market- be that global or different sectors- which can help identify new sales channels. it's truly about differentiation and the right leadership team to execute on this.

The “crowded market” reason for a no means the founders failed to convincingly articulate why they will win. If there is a compelling reason, really hone in on that for future investor conversations. Maybe it is unique access to customers that significantly shortens your sales cycle, maybe it is an emerging customer segment noone is going after but you’re uniquely demonstrating traction in, maybe it’s your product that wows clients in the first meeting and you can prove that with your revenue growth, etc. Whatever it is, lean into it and show you are playing on a different level.

Differentiation on core product is often the toughest to achieve in markets like these but in the case of B2B SaaS we have seen sales, service and VAS innovation differentiate a team enough to consistently win market share from competitors. Sometimes it's also about starting off designing for a hyper specific niche group of customers that become vocal advocates and collaborative design partners. Community is an incredible strong differentiator in a saturated market.

In Series A and above, you begin to have metrics which makes the choice simpler. It is "easier" to spot companies breaking out (in theory). In the earlier stages, it's all about the team, founder market fit and the pull from the market (the need). It is extremely hard to choose winners, otherwise we would all do it. At Cardumen Capital we try to eliminate bias in the data gathering process and then add it in the decision. In other words, gut feeling does play a part, but once you have gathered and evaluated the different aspects of the business. We believe this reduces the chances of falling in love with specific parts of a business ,(the story, the founders, etc.). If it were easy VCs would not have 20-25 startups in their portfolio.

If there's a market everyone's chasing but no one's is serving...you got to find the startup that is doing it all differently. The Drone in a Box market is that type of situation. Is not a Drone in a Box what can serve that trillion+ ripe market but everyone calls it that because that's all these startups can think of doing. The same situation happens often in new markets. Search for startups, ask the right questions, and you might find the unicorns.🙂👍

It is always the people that make the real difference. I look for a motivated , yet realistic founder who whilst has total belief in their product or service does not believe that they are superman or superwoman and that they can do everything. This is before I get to the product.