What do you do if a startup's potential for innovation is unclear to venture capitalists?

Crucial questions can lead to a deeper understanding of a startup's innovative potential. First, ask 'How does the startup's solution differ from existing market offerings?' to identify unique value propositions. Next, consider 'In what ways could the startup's approach to delivery or business model disrupt the current market?' to evaluate potential for innovation beyond the product. Finally, 'What is the capability of the team to adapt and evolve with market trends and demands?' This assesses the team's potential to sustain innovation, crucial for long-term success and relevance in a rapidly changing industry landscape.

When faced with uncertainty about a startup's potential for innovation, it's a reminder of the challenges inherent in the VC landscape. That's why Evalify was born. As founders ourselves, we understand the frustrations of navigating this ambiguity. We created Evalify not as a product to sell, but as a solution to a problem we've experienced firsthand. Our aim is simple: to provide clarity and insight where there was once confusion. Evalify exists to empower both investors and founders by shedding light on the often opaque process of evaluating innovation. By leveraging AI and patent data, we hope to bring greater transparency and derisking to the VC world, ultimately fostering a more equitable and vibrant ecosystem for innovation to thrive.

You have to go back to the beginning and better define your innovative idea and how it will benefit the marketplace. From there you have to learn how to articulate the benefit in a way that the general population can understand and is easily consumable. Finally, so prospective customer research and feedback surveys, this is a great way to demonstrate viability in the market.

When a startup's potential for innovation isn't immediately clear to venture capitalists, it's essential to probe deeper. Engage directly with the founders and ask pointed questions about their long-term vision, strategies for addressing existing market challenges, and what distinguishes their solution. Often, layers of innovation may exist beneath the surface, particularly in areas such as scalability, adaptability, and user experience. Pay close attention to the passion and expertise of the founders, as these qualities can drive innovation even when it's not readily apparent.

Consider a startup creating a new app. Its innovation might lie in a unique algorithm that significantly improves user experience, something not immediately obvious until delving into the technical details. Another example could be a company introducing an eco-friendly manufacturing process in a traditional industry. While the product might seem standard, the method of production could drastically reduce environmental impact, marking a significant innovation in sustainability practices. These cases highlight the importance of looking beyond the surface to understand the multifaceted nature of innovation in startups.

A good pitch deck will contain market analysis. It is important to understand how the market analysis was derived then probe and validate any assumptions. If there isn't one, that should raise questions around potential skill gaps and resource gaps in the company.

I understand the importance of exploring the market when a startup's potential for innovation is unclear. By researching competitors and analyzing the current market landscape (and that can be conducted patent-wise too!), venture capitalists can gain valuable insights. This process can reveal gaps that the startup may be positioned to fill with innovative approaches or technologies. Even if a product appears similar to existing offerings, there may be opportunities for innovation in reaching underserved markets or enhancing customer satisfaction significantly. Ultimately, a startup's potential for innovation often lies in its ability to identify and capitalize on these opportunities before they become apparent to everyone.

As a founder with experience in the VC industry, I understand the challenge of assessing a startup's potential for innovation when it's unclear. Seeking evidence to support the startup's claims about its product or service's novelty and utility is essential. This could involve gathering customer testimonials, implementing pilot programs, or analyzing performance metrics. Sometimes, a lack of apparent innovation may be offset by strong customer validation, indicating that the startup has identified a unique niche within the market. Additionally, it's important to consider that what may seem like a lack of innovation could actually be a strategic decision aimed at solidifying market position before introducing more radical changes.

Drawing from my experience in the VC industry, when a startup's potential for innovation appears unclear, it's crucial to consider current trends. By analyzing emerging technologies (and patents!) and shifts in consumer behavior, VCs can gain valuable insights into the startup's trajectory. This forward-thinking approach may uncover how a seemingly conventional product could become innovative by leveraging trends before they reach mainstream adoption. For example, a startup's product might integrate emerging technologies like AI in ways that have transformative potential in the near future. By staying attuned to trends, venture capitalists can better evaluate a startup's innovative potential and make informed investment decisions.

Sensing trends is cool but timing is essential: the same startup that succeeded, if launching too early or too late would probably have failed. Do not underestimate how bad it is to start too early, too. You could not make Netflix in the 1990s with slow modems and gfx, they were selling DVDs. A personal experience: mobile apps and games were a future trend in 1999-2000, when I launched games on Nokia phones but it was too early and not profitable because of a too small and fragmented market, until iPhone and app stores after 2007, much later. When considering trends, also think at how many years these may take to become mainstream and profitable, if that's too far in the future, you may end funds and close before reach profitability.

Provide proof why you (the founder) believe that there is potential. It’s likely that the investor you are talking to has seen a similar innovation before and that they have a holistic overview of the innovation in a choosen market.

Show the examples. Study the use cases when products were launched before they became mainstream, create proper comparisons and share these stories during pitching.

Consider that VCs may not be the most suitable source of capital for the particular innovation you are commercializing - it may not fit the VC model, require specialized diligence expertise for a novel technology that the VC you have approached for funding does not have, etc. Assess the tradeoffs for other types of funding that may be more suitable for your company and funders who may be more likely to see the value in your innovation - strategic investors (market leaders in industry your company delivers value to who can better understand the pain points your solution may be addressing), family offices that may have a different model, timescale, or goals for investing in solutions like yours, impact investing funds, Foundation PRIs, etc.

The narrative around your thesis is critical. At Begin Holdings our narrative was centered around the fact that 90% of childhood brain development occurs before kindergarten but 90% of the investment occurs after. We're grossly underinvesting in some of the most critical parts of a child's development. How might we make it easier for parent's to provide the right level of support and resources to counteract some of this imbalance? This set the stage for the problem, why new and innovative solutions were needed in market, and the starting point our different viewpoints of the addressable market and what our product market fit would be. Add to that on how data analytics and AI could further differentiate, and our story was set