Are You a Replicator, Mutant, Copycat or Pioneer?
Why Does It Matter?
Investors are often infuriated with entrepreneurs that don’t understand what they have and where what they have fits in. Entrepreneurs are often infuriated that investors don’t like startups which isn’t exactly true. If you want to attract investment then you’d better know where you fit and why.
Last week I met an entrepreneur who at first told me that he had an original idea for a new business concept. When I suggested that my investors probably aren’t too interested unless they can see a track record or at the very least a proof of concept, the entrepreneur then pointed to a similar business in the US that has done very well.
With his credibility shrinking fast I walked him through how I classify such business startups into the following: replicators, mutants, copycats and pioneers. After several coffees the entrepreneur thanked me and agreed to completely re-write his business plan to reflect his position and attract investors that suit him.
At Dequity Partners we see this as a business that has been done before by the same people and for one reason or another want to replicate it again. They have successfully commercialised an idea, proven a product or service and have all the contacts and experience to do again. Providing there are no skeletons lurking in the closet or legal minefields, these are a great startup investment because many of the key risks are known and addressed and yet the tag ‘startup’ allows an investor to take a large equity stake and participate in the upside.
At Dequity Partners we see these businesses as ones that are adapting or expanding on an already tested and proven idea. The entrepreneur has spotted an opportunity to leverage an existing market into new territory or a new product or service to the same market. Although to a degree the new markets are unproven, the team has done it before and like the replicator, it offers a slightly less risky startup proposition.
Fact – Investors love management teams with proven track record.
An entrepreneur has seen a successful business concept, product or service and believes they can copy and do it better than the original. At Dequity Partners we see this all the time with internet and technology startups. For example, they have some variant on the social media concept based entirely on the fact that Facebook has done it so they can too. I don’t mean to be dismissive but I see this as a very risky startup concept. I have no end of discussions with entrepreneurs in this category and convincing them that my investors aren’t interested and why can be infuriating. The entrepreneur often feels that this should be deemed less risky based on the fact that everything has been proven but that is far from the case. They have no personal track record in rolling out this concept and in the eyes of investors that is highly risky.
Perhaps the most risky of propositions. These are entrepreneurs at the leading edge of whatever they are trying, often scientists and technicians. As the old adage goes, pioneers were the ones that blazed the trail and ended up dead with arrows in their backs. To investors these are the sexy but very risky ones, ones they could well punt on and don’t expect to win. Unfortunately for entrepreneurs, these are the hardest to get funded and make up the smallest part of most investor’s portfolios.
Often the founder is not the one who would be able to commercialise the idea so the investor will want a greater degree of control. Another key problem at Dequity Partners we bump into on a daily basis with these opportunities is that the entrepreneur over values the idea without a proven concept of any kind, making it too hard for the investor to see any path to success. These get passed over time and time again.
The world of investment is a wonderful place with such diversity. Dequity Partners educates entrepreneurs on how the investor thinks. We are totally investor centric. We firmly believe that if entrepreneurs understand exactly where they fit in it will help keep their expectation in line and increase their chance of investment. We are always investors ourselves in every opportunity we greenlight, in many ways we act as screeners, the test is simple – if we would invest it has a good chance of successfully raising investment capital.
Do you understand where you fit? Are you a replicator, mutant, copycat, pioneer? We have our opinion but we’d love to hear your thoughts. Would you like our help with any of the above? Please call on +61 2 9258 1972 or go to our Contact page.
Tags: Copycats, Dequity Partners, Entrepreneur, Entrepreneurs, Investment, Investor, Investors, Mutants, Pioneers, Proof of Concept, Proven Track Record, Replicators, Startup, Startups, Track Record