This Week in Venture Capital and Artificial Intelligence

Every week I will share and summarize 3-5 ideas and insights with the LinkedIn community. Some of the summarizations I may have covered during the week, and other things may have just been passing thoughts.

1. Don’t Be a Great Founder, Be a Great Marketer

Great founders create amazing products that never make it to market, because they are terrible marketers. If you know how to market and sell as a startup founder, you would need to raise significantly less capital from investors. This is the essence of the bootstrapping mentality. A founder with a fundraiser’s mentality is different from one with a bootstrapper’s mentality, and this distinction makes all the difference. Marketing and sales are among the most cost-effective activities you can undertake as a founder.

I am often surprised by the large marketing budgets that founders request from investors, sometimes as high as $300,000 to $500,000 when raising only $1,500,000. Early-stage startups should allocate around $5,000 to $10,000 monthly, or up to 8-10% of total annual revenue or use of funds, towards marketing. You can gradually increase your marketing spend as your revenue and budget grows. Just make sure you are spending money on marketing for the right reasons.

Many founders make the mistake of heavily investing in marketing campaigns without first prioritizing their customer profiles. Instead, focus on developing a product that genuinely resonates with your target audience. When your product addresses real needs and delivers exceptional value, satisfied customers will naturally become advocates, driving organic growth through word-of-mouth marketing.

THE BEST USE OF FUNDS ARE THOSE SPENT ON YOUR CUSTOMER, AND THEN YOUR PRODUCT, BECAUSE THE MORE YOU INVEST IN YOUR CUSTOMER THE BETTER THEY WILL MAKE YOUR PRODUCT, AND THE BETTER YOUR PRODUCT, THE MORE THEY WILL MARKET IT FOR YOU

Misuse of marketing funds often stems from three main reasons:

1. Low Confidence: Founders believe marketing will help them acquire customers. However, marketing alone does not necessarily attract customers. Knowing Your Customer (KYC) is much more important. The better you understand your customer and the market, the more confident you will become.
2. Trying to Maintain FMA: You can maintain FMA by knowing your customer profiles, which helps you tailor your product to them. There is no way to maintain FMA without understanding your customers.
3. Laziness: Marketing is hard work. Building relationships is harder work. Dollars do not take the place of hard work.

I PERSONALLY LOVE IT WHEN A FOUNDER WANTS OUR MONEY, BUT DOES NOT NEED OUR MONEY AND THEIR PITCH IS "THIS IS WHAT THE COMPANY COULD BE MUCH SOONER WITH YOUR MONEY" VS. "THIS IS WHY WE NEED YOUR MONEY. DO YOU WANT TO BE APART OF WHAT THIS COMPANY IS AND CAN BECOME?" IMAGINE THE DIFFERENCE IN THE PITCH! WE WANT YOU TO COME ON THIS JOURNEY WITH US (AND NO MENTION OF MONEY), VS. WE NEED YOUR MONEY IF YOU WANT TO COME ON THIS JOURNEY WITH US.

The Best Use of Funds: Spend on your customer first, then your product. The more you invest in your customer, the better they will shape your product, and the better your product, the more they will market it for you.

There are several forms of low-cost marketing that I believe founders should employ:

• Networking and Partnerships: Builds KYC, strong market relationships, and market presence.
• Content and PR: Establishes you as an authority and solidifies your presence.
• Guerilla Marketing: Generates authentic, unique approaches for go-to-market strategies and helps maintain FMA.

Great marketers can market effectively without substantial financial resources by leveraging creativity, strategic thinking, and a deep understanding of their audience. They use innovative campaigns, content marketing, and social media engagement to capture attention and build relationships. By optimizing content for search engines and focusing on organic reach, they drive sustainable traffic without heavy reliance on financial remedies. Ultimately, their ability to think creatively and use resources efficiently enables them to achieve significant results with limited budgets.

As a startup founder, mastering the art of marketing and sales can drastically reduce the amount of capital you need to raise from investors. Funds from investors should primarily support your operations. The best use of funds is to spend on your customer and then your product. This approach ensures that the best form of marketing, which is knowing your customer (KYC), is effectively utilized.

Allocating investor funds towards operational efficiency is much more important. Operational efficiency involves building from the outside in with KYC, not from the inside out with the product.

2.??? McDonalds Marketing: Always Had First Mover Advantage (FMA)

McDonalds always had FMA and that is why they are still the fast food titan. They never had to market in the traditional sense because they knew their customer. As a matter of fact if McDonalds stopped all marketing today, they would still maintain FMA for many years to come, because they know their customer, and their customer knows them. It's not about their product, it's about their ability to market and know their customer. But they continue to market based on the aforementioned, and this is why they are the king of fast food globally. Another reason is due to arbitrage which we will discuss later.

McDonalds is a marketing company, not a food company, and they are better at marketing companies than most marketing companies in trade

There is a saying that says “nothing new ever gets created anymore”. What seems new is just a new combination of different things we already know to produce a new way of doing things. As a matter of fact, that is all AI really is. It is nothing more than computers/hardware, algorithms/math and data. All of these things have existed for centuries in semantical ways. This is why newcomers and competitors have come into the industry and offered something authentic yet similar to McDonalds. The other fast food companies are nothing new, just a recreation of the same.

For example, the term "computer" was used to describe people who performed mathematical calculations before the invention of calculators, and this usage dates back to the early 17th century. These people were known as "human computers" and were expected to follow strict rules. In English-speaking countries, the term was commonly used until the 1950s, and even referred to female programmers who worked with the Eniac as "female computers". For example, Katherine Johnson, a female mathematician, worked as a human computer at NASA in the 1960s and 1970s, and later became a technologist there. Shakuntala Devi, an Indian mental calculator, astrologer, and writer, was also known as the "Human Computer".

WE OFTEN REPLICATE WHAT WORKS, BUT WHEN WE DO, WE SHOULDN'T EXPECT TO DO ANYTHING EXTRAORDINARY. IN FACT WE SHOULD EXPECT TO DO EVERYTHING ORDINARY. IT’S SIMPLY THE LAW OF DIMINISHING RETURNS. HOW ABOUT CREATING SOMETHING THAT HAS NEVER WORKED AND MAKING IT WORK.

If you find yourself blending into the crowd or only adding to an already saturated market, it might be a signal to break away from the conventional path. Consider venturing into untraveled territories, where there are no established rules or guaranteed outcomes. This approach involves risk and the possibility of failure, but it also holds the potential for groundbreaking discoveries and significant personal growth.

On this path, you will encounter a series of trials and errors. You will experiment, fail, and learn repeatedly. This iterative process builds resilience, sharpens your problem-solving skills, and fosters innovation. Ultimately, these experiences can lead to unique successes that others will admire and want to replicate.

However, this does not mean disregarding the lessons from those who have succeeded before you. Learning from their experiences can provide valuable insights and shortcuts. But to truly excel and surpass these predecessors, you need to carve out your own path. This involves integrating what you’ve learned with your distinct vision and ideas, pushing boundaries, and taking calculated risks.

In essence, true innovation and leadership come from those who dare to venture beyond the proven and familiar. By doing so, you not only stand out but also set new benchmarks that others will strive to emulate. The rewards of original thought and action are far greater and more enduring.

Understanding the limitations of copying successful models contributes significantly to recognizing if you have a first-mover advantage. When you innovate rather than imitate, you are operating in a space where there is little to no competition, giving you the potential to set industry standards and establish a strong market presence. This originality ensures that you are not just another player in the field but a leader setting the pace. First-mover advantage is characterized by the ability to capture the attention and loyalty of customers early, securing a larger market share before others even enter the scene. By venturing into new territories and developing unique solutions, you position yourself as the original innovator, making it difficult for subsequent entrants to match your established credibility and customer base. The process of exploring, testing, and refining your ideas enhances your understanding of the market and solidifies your position. This advantage is rooted in the fact that your value proposition is authentic and not a derivative, making it more attractive and trustworthy to consumers. With all this said, the willingness to innovate and take risks, rather than simply copying others, is a critical indicator of whether you hold a first-mover advantage in your industry.

?3.??? What living in Northern Ireland (United Kingdom) for 4 years taught me as an investor and a founder

The UK and USA markets offer very different environments for founders, each with unique opportunities and challenges. Some key areas of interest to me which I would like to share that I experienced:

Investing: In terms of funding, the UK provides a growing seed funding ecosystem supported by government initiatives like SEIS and EIS, though UK-based VCs are typically more conservative, leading to smaller funding rounds. Conversely, the USA boasts a mature seed funding ecosystem with aggressive VCs and larger funding rounds, alongside a more active IPO market. Regulatory environments also differ, with the UK having much more stringent regulations, particularly in data protection and financial services, while the USA's regulatory landscape varies by state, with some being highly startup-friendly.

So this is something to think about in the event you plan to expand cross – border as a native of either country.

Customer targeting: Market size and customer base present another major contrast; the UK market is smaller and highly concentrated, making it easier to target specific segments, though customers may be more conservative in adopting new technologies. In contrast, the USA offers a vast and diverse market with a higher propensity for adopting new innovations. The talent pool in the UK is strong in areas like fintech and AI, but Brexit has introduced some uncertainties, whereas the USA's tech hubs provide a vast and diverse talent pool, albeit at a higher cost. Culturally, the UK's business environment is more formal and hierarchical, with networking relationships taking longer to build, whereas the USA's business culture is more informal and results-oriented, with faster-paced networking. Support ecosystems also vary, with the UK government providing substantial support through grants and tax incentives, and a growing number of incubators and accelerators. The USA, on the other hand, has an extensive network of renowned incubators and accelerators, with varying levels of government support depending on the state. Understanding these differences is important for founders to tailor their strategies effectively for each market.

Presenting styles: The ways in which business is presented are very different. For example, having separate pitch decks tailored for the UK and USA markets is important because each market has distinct characteristics, expectations, and investor mindsets. A UK pitch deck should emphasize the market size, regulatory environment, and local competitive landscape relevant to the UK. It should also highlight aspects like government support and local success stories to resonate with UK investors who may be more conservative and focused on risk mitigation.

IF YOU ARE TARGETING DIFFERENT COUNTRIES, YOUR MARKETING MATERIALS SHOULD RESPECT THE CULTURE OF THAT COUNTRY, AND THIS MEANS EVEN CHANGING YOUR SPELLING E.G. FAVOR (USA) VS FAVOUR (UK)

Conversely, a USA pitch deck needs to cater to a more aggressive and risk-taking investor base, focusing on scalability, innovation, and large funding requirements. Highlighting traction in the vast and diverse US market, along with clear exit strategies such as IPOs or acquisitions, can be more appealing to US investors. Tailoring the pitch to address the specific interests, regulatory landscapes, and business cultures of each market increases the chances of securing investment.

Partnerships for market entry: For companies looking to enter the other respective market, partnerships can offer significant strategic leverage. In the UK, partnering with established local companies can provide insights into the market dynamics, regulatory requirements, and customer preferences. It can also offer a ready customer base and enhance credibility among local stakeholders. For US companies entering the UK, such partnerships can facilitate smoother navigation through stringent regulations and establish a trusted local presence.

Similarly, for UK companies entering the USA, partnerships with local firms can help overcome the complexities of a vast and diverse market. Local partners can provide critical support in understanding regional variations, customer behaviors, and regulatory differences. They can also assist in establishing a distribution network and gaining rapid market acceptance.

Overall, partnerships enable companies to leverage local expertise, reduce market entry risks, and accelerate growth by tapping into established networks and resources.

Having a legal domiciled entity in the respective country; important for investors and customers:

Having a legally domiciled entity in the respective country is a gamechanger for founders when it comes to both investors and customers. For investors, it ensures regulatory compliance, providing clarity and assurance that the company operates within the legal framework of the country, thereby reducing the risk of legal complications. This also allows investors to benefit from local tax incentives and structures, such as the SEIS and EIS schemes in the UK, which offer significant tax reliefs. Additionally, a local entity demonstrates a serious commitment to the market, enhancing perceived stability and potential, while also ensuring that financial reporting aligns with local standards, providing transparency and reliability in financial statements.

For customers, a legally domiciled entity builds trust and credibility, establishing a physical presence in the market that customers prefer. It also ensures that customer support is more accessible and responsive, tailored to local needs, and that consumer rights are protected under local laws. This presence reassures customers that there are local legal avenues available for dispute resolution, which can be more straightforward than dealing with a foreign entity.

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From a strategic business perspective, a domiciled entity facilitates smoother market entry and operations, aligning with local business practices, regulatory requirements, and cultural expectations. It positions the company to leverage local opportunities, partnerships, and networks effectively, accelerating growth and market penetration. Additionally, it allows for more efficient resource management, understanding local market conditions and regulations, and reducing operational costs related to legal fees, compliance, and logistics. In summary, having a legally domiciled entity demonstrates a strategic commitment to the market, facilitating smoother operations, better customer relations, and robust investment appeal.

Local banking infrastructure and resources: Having a bank account in the respective country should be a priority for several reasons.

For businesses, it ensures seamless financial transactions and operational efficiency, allowing them to manage local expenses, payroll, and supplier payments without the complexities and costs associated with international transfers.

It also facilitates easier compliance with local financial regulations, ensuring that the business adheres to the necessary legal and tax requirements.

For customers, a local bank account enhances trust and credibility, as it indicates a stable and committed presence in the market.

It enables smoother transactions for customers, who may prefer or require payments in local currency, thereby improving customer satisfaction and fostering stronger business relationships.

Additionally, a local bank account can provide access to local financial services and credit facilities, which can be another gamechanger for funding operations and supporting business growth. Overall, having a bank account in the respective country simplifies financial management, enhances regulatory compliance, and strengthens customer and supplier trust, contributing to the overall success and stability of the business.

Arbitrage: Arbitrage is great for startups because it offers a pathway to capitalize on price changes and economic fluctuations across markets geographically. Arbitrage can contribute to better market efficiency by managing both bear and bull markets effectively. In a bull market, where prices are rising and optimism is high, arbitrage opportunities can help startups capitalize on rapid price movements, allowing them to lock in profits quickly.

This can be especially important for securing the funds needed for expansion and scaling. Conversely, in a bear market, characterized by declining prices and investor pessimism, arbitrage can provide a stable income source when other revenue streams might be under pressure. By exploiting price discrepancies, startups can cushion the impact of market downturns, maintaining liquidity and financial stability even in adverse conditions.

Additionally, the innovative and competitive nature of arbitrage contributes to the development of advanced tools and strategies, which can give startups a competitive edge in their respective markets. ?

I hope you enjoyed this week's newsletter stay tuned for next Saturday's edition.

1. ) Upcoming - Stay tuned for:

-- Show release with Serg Masís on my podcast titled Explainable AI

-- Show release with Rohan Hall on my podcast titled Explainable AI

2. ) Upcoming publication

-- On IdeaScale , a well-known global innovation platform I write for

You can find out more about these by tuning into my LinkedIn profile daily and peaking my CV that is listed below from time to time. Also if you would like to be a guest on my 2 podcasts, Capital Unscripted , or Explainable AI, or if you would like to be a contributor to any of the medias I write for or am partnered with, -- includes AI Accelerator Institute , Idea Scale , or AI news -- then please reach me by inboxing me.

I hope you enjoyed this week's newsletter stay tuned for next Saturday's edition.

How to contact me:

-- Other than LinkedIn, if you want to know more about me or hear more from me you can view my CV here: www.paulclaxton.io

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