VCs want to know that your business can't easily be copied since they want to avoid intensely competitive markets. When this question comes up you need to be prepared to provide an honest answer - one that not only doesn't over sell, but also doesn't under sell your company's position.

There are lots of types of barriers to entry. The most commonly cited are trade secrets/ patents, partnerships, economies of scale and 'first mover advantage'. Despite being frequently mentioned, first mover advantage is not in itself a barrier; it is an opportunity to create barriers (e.g., partnerships, economies of scale, network economies) before others enter the market.

In the information technology space 'information' and 'technology' are also key barriers. Some companies accumulate information that differentiates their service from new entrants. eBay is an example of this. Their auction listings make them a more valuable service than an auction site with nothing for sale. Without content, any new entrant will face the quandary of getting enough initial listings on the site to attract users, before those users provide listings. It's usually a bit of a catch 22. This can make for a substantial barrier.

Your technology can also be a barrier if it will take competitors significant time or resources to engineer an equivalent product.

When asked about your company's barriers be honest. Explain the real barriers that your model creates. However, be sure not to embellish. You're not going to trick VCs and the expectations of barriers may be lower than you expect. You have more to lose than gain by exaggerating. Most companies do not have a deterrent for all competition - that's the norm. VCs generally think that it's OK to have some competitive vulnerability, as long as you have a talented team and the right idea.

Barriers to entry are an important part of your pitch. Be thoughtful about the competitive dynamic, be ready to articulate your position and be honest.