investors and money

Among investors and in the startup environment, people tend to talk about scaling a project when they want to take it to another level. It can be applied to both domestic growth and international expansion. In this case we focus on projects in the early stages, pre-seed or seed, when the goal is still limited to consolidation in the local market.

In these early stages, it’s difficult for an entrepreneur to show that their project can be of interest to investors when traction and metrics are still irrelevant. Many entrepreneurs tend to show early billing dates and the number of users and followers on networks, when in reality these are insignificant arguments for investors.

The “Product Market Fit”: The key and how to measure it

Fernando Dal Re is a First Ticket partner of the fund TheVentureCity. They help the founders to create the basis for the start of their entrepreneurial project with tickets between 100,000 and 300,000 euros for teams in the seed phase. He is the one who provides the key to the main value that an investor considers at this moment: The product market fitsthat is, the suitability of the product or service in the market created by that startup.

suits him Edgar Vincentco-founder of Enzo Ventures, another fund specializing in investing in seed-stage startups. “It doesn’t matter if they’re targeting the mass market with a B2C or targeting the enterprise with a B2B, if we see it doesn’t fit and people are willing to pay for it, there’s nothing to do,” he explains .

Dal Re clarifies that it is not necessary to present big sales at the outset, instead they consider other variables to gauge the suitability of the product. In his opinion, these are the most important:

retention. Then the customer buys the product and keeps it for, say, 6 months.

frequency of use. Once you buy the product, you not only keep it, you use it more and more often.

As an example, he cites the case of a mobile application. “It’s of little use to a user to pay 3 or 4 euros for the download if they corner it or uninstall it after a few months. With this you can present the first accounting figures, but you do not demonstrate the fit. A free download application is preferable, but with an increasingly recurring usage, as would be the case with WhatsApp.”

Edgar Vicente adds to these observations the example of a mass-market marketplace that considers more than the invoice or the average sales receipt transaction volume that are made in it and the repetition.

The risks of scaling too fast or too late

According to Fernando Dal Re, the certainty of having a market-ready product would be the tipping point to start scaling a project. Neither before nor after. The first would mean cheating yourself while delaying growth too much “may favor someone else who takes your toast”.

It’s also not very controllable product market fits will 100% guarantee the success of a project, but having it ensures success. Knowing if customers are repeating more than canceling takes time, especially in subscription or membership businesses. Therefore, a certain amount of rest is recommended before you start looking for investments. In fact, numerous studies place premature scaling of a project among the top 3 causes of startup deaths.

But as Dal Re reminds us, overthinking it can also be dangerous, especially when you have a business model that can be replicated in a competitive global environment. Only with your own patented technological developments can you start out a little more relaxed.

We will reach the moment of scaling, which is also not an easy task. “We illustrate it with a cube. If the product is good, that money is used to keep it ever fuller until you pour it where you’re interested. If the product doesn’t fit the market, it becomes a bucket full of holes that cannot hold the incoming capital,” concludes Dal Re.

Financing, funds, investment rounds, scaleup, startups