Competitive Analysis in Venture Capital Diligence: Introduction

James Conlon is a co-founder of Venture Scanner and Partner at Bullpen Capital

When I started in the venture capital business I was pretty bad at it. I didn’t have an MBA, prior finance experience, or 5 startups under my belt. I was an old poker pro wondering why in the hell I even got hired into this position after seeing how clumsy I was first day on the job. But I’ve learned a few things, mostly the hard way, and want to share them in the hopes they’ll help you learn a couple of them the easy way.

This series of posts (and the whole Venture Scanner business) is aimed at helping anyone who analyzes startups (whether for work, journalism, or even just a hobby) – but it will speak most directly to startup founders, VCs, and corporate development professionals looking to improve their skills in competitive analysis. So let’s dive into the first topic, and if you find it helpful please make sure to browse the content from the rest of the blog, there’s some really great sector-specific knowledge in there as well.

Insight #1: No company exists in a vacuum. What I mean by this is every single startup company is affected by external forces, including competition from other companies, macro trends in the overall market, and even current (and often fickle) attitudes toward the category from VCs or public market investors. That means you can’t fully analyze the value of a startup company for investment or a strategic deal without also analyzing the companies around it and the overall category that it competes in.

Ok – that realization probably isn’t anything ground-breaking for people who have worked in this business before, but it’s a lot easier to talk about than to put into practice. It might be easy to review the full competitive landscape on one company if you have 10-20 hours available, but it gets a lot harder to build those landscapes quickly, accurately, and completely for 500 deals a year (or 3,000 deals a year in the case of many seed funds). It’s also hard to keep those landscapes updated so that they’re actually current when you need them.

I’ve tried multiple ways of tackling this problem, most of which have failed. I tried clipping the entire internet into Evernote, I collected hundreds of quarterly reports, and manually tried to make sense of the competitor tags in Crunchbase to fill spreadsheets full of company data. [I’m sure everyone has their own methods, and I welcome hearing your stories, failures, and hacks.] In the end, none of it was giving me what I needed to make good decisions as an investor.

This is why Venture Scanner exists. It has one goal: sector-specific coverage of startup markets, updated daily. Not hyped up gossip-news, not annual reports, but a real in-house analyst team armed with clustering technology that makes them super-heroes in markets like 3D Printing, Bitcoin, Digital Health, and FinTech.  Seriously, they’re really smart and they have their own TV show.

This is the data I wish I had when I was a young VC just starting out and trying not to fall behind, and yet the more I talk to other colleagues about how they got their start in the industry, the more I hear stories very similar to mine. So please, come check it out and let me know what you think. The feedback I’m getting (from founders, new VCs, corp. dev. professionals, whoever) has all been really encouraging and helpful (and sometimes funny) so please keep it coming and I’ll continue tailoring these posts to the topics most relevant to what you’re facing.