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refers to the investigation companies and investors make into a company’s market to determine whether the company’s product will sell and whether the marketplace for the company’s product is large enough to support the product sales projected by the company. Every venture capitalist bases his investment decision, at least theoretically, on market research. Market research requires both an investigation of the market in which the company’s product will compete and an analysis of how the company’s product will fit into that market. It identifies who the company’s competitors are, what their present and future products will look like and sell for, and how price-sensitive its customers are. It also determines who the potential company suppliers will be and whether product components will be difficult to obtain. Market research should include reviews of available industry data, including industry magazines, web resources, and reports by industry experts. Annual reports of competitors should also be digested. And personal interviews and discussions should not be overlooked. Some of the most insightful information available can be obtained by a telephone conversation with a potential competitor. Venture capitalists conduct thorough market research and expect extensive and thoughtful research from the entrepreneurs they consider for their portfolios. The thoroughness of management’s market research and the conclusions drawn from it should be fully reflected in the company’s business plan. Unless the research is thorough and reflected in the company’s business plan, few venture capitalists will invest. If market research is new to company management, experienced consultants can be hired to help focus the questions and to conduct the research. See: Business Plan, Business Plan Format, Due Diligence. |
