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My competitor has venture capital backing. How can I use that fact to my advantage?

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Finance & Capital mentor Guy Kawasaki responds to the following question from an inc.com user:
How would you suggest that I use a competitor's successful VC funding to my advantage? Even though the other company has successfully raised $50 million through three rounds and is "out of the blocks", it has no revenues. My technology and business model are "better", causing fewer obstacles to the sale. Any suggestions on how to say to venture capitalists: "If you like them, you'll love us"?

Guy Kawasaki's response:
The fact that you have a competitor who has raised $50 million is both a good and bad thing for your start-up. As you suspect, venture capitalists are going to hesitate to fund a company that is going up against a well-funded start-up that is already farther along in its development cycle. But you can still use your competitor's presence in the market to your benefit.

First, your competitor and its $50 million in funding are a good indication that some venture investors believe that there is a real market opportunity for your company's products. Second, you have something very real to compare yourself against -- your competitor's product. For example, if you can clearly demonstrate that your product is significantly better -- not just a little better -- then you may be able to convince investors that you and your team can still win in the market with a better solution. Third, if your start-up can win new customers or take away customers from your competitor, you'll have explicit proof that you can win in the marketplace.

You need to show venture investors how you perceive the market differently from your competitor. Show them how your innovative customer acquisition strategy will crush your competitor and how your features and the overall quality of your platform or product establish higher barriers to switching than your competitor has.

Finally, if you can, use analogies to show the VCs how you will win. If you can provide a concrete example that illustrates your competitive advantage, your potential investors may be able to better grasp why your approach will win.

Ultimately, if you can demonstrate to potential investors that you and your team know the space, have a better business model, and can make up ground quickly, they may be willing to take a chance on your start-up.

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