A venture capitalist(VC) is someone who invests in a startup . A VC is not only a source of funding for the startup but much more than that, playing the role of a mentor, a connector (gives the access to his network which can include customers, buyers/suppliers in the value chain, etc.).
Investing in a startup is a highly risky business and hence a lot of factors have to be considered. And one of the very important factor is product market fit.
So what is product-market fit?
Just like you won’t be willing to pay for a dress which doesn’t fit you well or fits you well but there doesn’t exist an occasion when you can wear it, a venture capitalist won’t be willing to fund a startup whose product won’t fit the needs of a right market.
Well, let’s understand what exactly is a product-market fit with the help of dress fit and the occasion.
Right Product (Dress Fit):
There are a lot of options available out there to buy a dress. You can rent a dress, you can go to a boutique to get the dress stitched or borrow it from someone. The chances are that you would try to find a dress which fits you the best.
Likewise, there are a lot of problems a person faces and a few/lot of solutions available.
And what do startups do? They try to solve a problem which hasn’t been solved by anyone or has been solved but not in the unique manner in which the startup is planning to solve.
Usually, the idea of starting up is born out of a problem faced by the entrepreneur or as observed by the entrepreneur. The problem could be any, not solved yet by anyone or solved by someone but could be solved in a better way as per the entrepreneur.
Problem and its solution is an important consideration for a VC before investing in a startup.
A VC would consider:
1. How many people face this problem? Is this problem huge enough to solve? Size of the market?
2. Would people be willing to pay someone to solve this problem?
3. What is the solution? Will people accept the solution? And is the solution feasible/practical?
4. How much would be people willing to pay for the solution Vs the price offered by the entrepreneur?
5. How many people, out of those who face the problem would probably buy the solution offered by the entrepreneur?
Right Market (Occasion):
If you’re trying to sell beachwear to an Eskimo, I’m sorry you’re trying to hit a bull’s eye which doesn’t even exist.
What I mean is the Eskimo won’t have the opportunity/ occasion to wear that clothing even if it fits perfectly and even if you’re selling it at a huge discount.
Hence a VC would consider whether the market which the entrepreneur is targeting is a great market or not. Because even if the entrepreneur finds a perfect solution to a problem, but chooses a wrong target market, the chances of failure are huge.
And therefore, Product-market fit is an important consideration in the startup world and hence very important for VCs investing in a startup. Both the product and market should fit each other well for the success of a startup.
With that, I hope you get the perfect fit dress for an important occasion of your life or rather you make perfect dresses for someone else’s important occasion!
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