Venture capital investors ask a lot of tough questions before they sign any checks. One of the hardest is when they start drilling down into your business model and ask “How will you acquire users?”
But in reality this is a difficult question, because even well-known companies like Dropbox might have been hard pressed to come up with a satisfactory answer if they were asked that particular question.
Common answers include such nebulous coveralls like ‘build up a community identity,’ ‘implement viral marketing,’ and ‘create incentive packages’. Maybe these will indeed be persuasive. But, many companies learn as they develop through real life challenges and don’t really have all the answers.
Here we take a look at a few of the particular issues involved in acquiring users which may be more persuasive in wooing VCs over to the cause than the usual stock responses.
VCs prefer hearing that you’re committed to focusing on a particular market sector rather than how you will target a much wider audience and then go viral. There’s never any guarantee you’ll ‘go viral,’ but narrow the target a little and you’ve got a better chance of hitting the bullseye.
Budget and resources are limiting factors for any startup. If you focus all your energies on one particular sector, you will almost certainly yield far better results because that target sector will see a superior value in your service.
Events that are sector specific are the norm, though there are exceptions to the rule such as targeting engaged couples and college students. With these, there are usually sector-targeted content platforms and/or distribution channels involved that make it easier to penetrate a small but ultimately profitable market, from which you can expand.
If you can tell the VC that you have the scaling flexibility to go from a hundred to a hundred thousand subscribers and thereby transform into a sustainable business, this will be music to their ears. Promoting a product one-on-one is not scalability. If on the other hand, you’re able to say that you already have a partnership with Coles Group Ltd in place, this is real scalability built into your business plan, and they’ll be suitably impressed.
Get in early with validation
You need data to back you up. Look into several different types of acquisition strategy and decide which will suit your line of business best. For example, if you took out ads on Google and Facebook and found that SEO is more cost-effective than other methods, this sounds like you has done your homework. If you’ve worked out a conversion rate against costs to come up with a realistic ROI, that sounds even better.
All this is validated data, rather than just a bunch of assumptions tied together with a string of wishful thinking. When presented with such solid data investors can see how an injection of capital will help an early trend to scale up.
Author: Carlo Pandian worked at Adzuna, a tech start-up based in London. He is currently writing a tutorial on QuickBooks (accounting software for entrepreneurs), and has previously published for Techli, Killer Startups and Under30CEO. Connect with him on Twitter @carlopandian.