Barring unique regulatory or patent protection, no company has a perfectly defensible business model. This holds true for companies of all sizes; even significant portion of the Fortune 500 has turned over during the past century.

However, this doesn’t mean that believing in the competitive positioning of a company in not important to investors. Investors need to believe that the company is positioned to win in its marketplace. While the competitive assessment that you provide to investors in your business plan will certainly be very helpful, it is typically not enough to make investor comfortable.

As a result, investors typically like to do a little research of their own in order to both learn more about potential competitors and your company’s potential barriers. Potential competitors are identified in a few ways. At the simplest level, VCs will scour the web to see which companies are already in the space and which companies are positioned to become competitors in the future. VCs will also look to ‘experts’ (e.g., CEOs of portfolio companies in adjacent markets) to fill some of these gaps.

In order to assess your company’s barriers VCs will spend time thinking strategically about the means of competition in the market. If success is solely based upon your team’s ability to operate more efficiently than your competitors, VCs will need to know who is managing your competitors. If barriers are created through scale, then the VC will spend a lot of time thinking about whether or not your company is positioned to grow the fastest. Do you have the best model, the greatest access to customers and partners and the most desirable product.

The best thing that an entrepreneur can do to help VCs get comfortable with the competitive landscape is to 1) identify competitors and 2) make the case for why your company is positioned to win.

• Identify Competitors: It is always disconcerting to VCs when they discover a new competitor late in the process. It makes the VC feel that either the entrepreneur wasn’t forth coming about competitive risks, raising questions about the compatibility of management, or the entrepreneur doesn’t know their market very well.
• Make Your Case: When a VC starts doing research on the other companies they are going to hear lots of different arguments about the competitive viability of each company. If they are not hearing your perspective, they may only hear the other side of the story. If that’s the case they may not be fully aware about your company’s prospects. It is the entrepreneur’s role to make ensure that VC understands their view of the opportunity.