Questions

We are building a marketplace for yacht and sailing industry. What early preparations can be done to make sure we are able to attract funding later?

3answers

Strange, I answered this question a few days ago here: https://clarity.fm/a/2890 but this seems to be a repost of the exact same question.

Andrew's comments are spot-on about building a waiting list while you build your product. You want to be able to point to a meaningful uptake of customers and transactions early after launch. The challenge of raising VC with a product that is already launched is that the data available to investors has to be compelling enough to believe you've got all the pieces more or less in-place for significant growth with their investment. Depending on if you have a strong enough team, you might be best to not build and launch the product but get enough customer validation of the demand for you to try and raise pre-launch. Because they can always "wait" to see if in 3-6 months, you're much better than you were or if you're still at the same level.

To be absolutely clear, once you launch, the burden will be on your data to show exceptionally strong and significant metrics in order for you to raise a seed round of $750,000 or more from any VC firm or fund.

Dan is missing one key point in his investor analysis scorecard and it's the most important when VCs evaluate new investments, even at seed and that's TAM. Total Addressable Market. Put another way, it's "can this business become a billion dollar business?"

If a VC firm doesn't believe with conviction that your business can achieve that, then you're not going to get an investment except in the rarest case where you're a proven team with enough great traction that they'll consider the seed bet a "blind to see the flop." But this is extremely rare and shouldn't be considered a possibility for most entrepreneurs.

I'm happy to talk to you in a call about the realities of fundraising for startups.


Answered 6 years ago

I wrote an answer here on Clarity that relates to this question. You can see it here: https://clarity.fm/a/2303

Raising even a seed round for a vertical marketplace especially one like the one you're going after will require substantial evidence of a scalable and reasonable customer acquisition cost and meaningful lifetime value which means that without at least 6 months of repeat purchase behaviour, it will be tough but not impossible to raise.

Happy to talk with you if you'd like to speak on more detail.


Answered 6 years ago

Depends where you are in your process.

Taking a lean approach to prove demand will always help your case. Without having built anything significant in terms of the market functionality, you can easily have a sign up page, and drive traffic and have signups ready when you open your market - both in terms of buyers and sellers. Using this time in parallel while something is built to prove your go to market message and demonstrate traction will prevent delays later.

There are of course the pre-requisites, such as ensuring your vision is big enough to be attractive to your target investors (VCs have different needs on an exit -read multiples- to traditional business angels for example) but also starting to engage those investors now, not for money but to build a relationship, provide a high level roadmap and starting to deliver on that roadmap, will prove to those investors you deliver on what you promise. All ease the road later, removing fears so they can ultimately sign a check.


Answered 6 years ago

I help b2b companies in finding their most profitable customers and have worked with several companies creating marketplace business models. If I was in your shoes I'd:

- Sell, sell, sell. Even if you're manually connecting buyers with sellers at first. Ensure what you're offering is a genuine need. People hate change (not a bad thing) so you have to offer them something that is leagues ahead of what they already use. Meaning it's a lot faster, cheaper, easier and funner then what they already do. Talking to potential customers is the easiest way I've found of figuring out where the pain/problem is and how you can address it.
- Ensure your market is specific, but big enough. Who are your customers and how many of them are there? At first you need to target a segment of the yacht/boating industry, own it and get people raving about you. Then you can move into bigger/adjacent categories. This proves traction and revenue and shows investors where you can grow into.

Feel free to call me if you'd like some more specific advice for your situation and stage of growth.


Answered 5 years ago

Investors want 3 things.
1) Great team
2) Product validation (that someone wants it, etc)
3) Story / vision

If you score each one out of 10, then a 30 would be a perfect score. So you're challenge is to honestly evaluate where you're at with each, and work on them. If you need comparables, watch Startup School talks, or startups on AngelList that are or have raised.

The team and vision items are easier to assess, the tough one is product traction. My approach is.
1) Have a working application - your pitch is your URL
2) Have paying customers - proves that someone had a need
3) Test marketing channels that might work (ex: Facebook ads, Twitter ads, etc)

You don't need to boil the ocen day one (pun intended) - just focus on a small community of active yacth/boat type people and see if you can't get 5 people to use your site, then 10, etc. Take their money, and negotiate the details on the backend. You don't need to recruit 100 yatch owners to list on your site, just "borrow" their images and try and see if anyone will buy from you.

That's one of many ways to progress forward on a marketplace idea. To talk with the pro's (founders who've built huge marketplace companies) request a call here: https://clarity.fm/topics/marketplaces-10183 .

Hope that helps.


Answered 6 years ago

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