Fundraising for Your Startup: You Don’t Want to Be the ‘Uber of X’

If you begin by associating with another model, it can constrain your thinking. (Photo: The Quint)

As a seed-stage investor at OperatorVC, I see at least 50 startups a month that are looking to raise a seed round. Most pitches aren’t perfect. That’s usually OK - a founder’s core competency should be building, not pitching.

But one of the most egregious mistakes is calling yourself the “Uber of X”, or the “Airbnb of Y”. The moment you say this, the pitch ceases to remain credible.

This is such a common refrain - and such a rookie mistake - that I can’t help but point it out.

Why You Don’t Want to Be ‘X of Y’

• The most common mistake startups make while pitching ideas to investors is to introduce their model as “X of Y”.

• It sounds like replication of an existing model rather than an original attempt at solving a problem.

• If you begin by associating with another model, it can constrain your thinking and come in the way of a better solution to a potentially good idea.

• Simply state the problem you’re solving and the detailed solution you propose.

• The investors will understand better if they can see a clear line-of-sight from problem to solution.

• Leave the pattern-recognition for success up to the investors.
  

I think the “X of Y” epidemic started with Y Combinator’s (YC) application process. The How to Apply page mentions that YC likes hearing “X of Y”. It helps them place the startup into the pantheon of successful companies they’ve seen.

It makes sense for YC. When they have to scour thousands of startups in a short time to select a few, a metaphor helps. “Hi, I’m the Uber of bicycles.” Enough, let’s move on.

But most fundraising pitches are not YC applications or Demo Days. Yet, Paul Graham’s words are gospel. So everyone and their next-door founder has adopted this with great gusto, even in situations where it doesn’t make sense.

And it’s got to a point where it’s almost ludicrous! I’ve heard a startup describe itself as “the BikeBob of X”. Have you heard of BikeBob? Neither have I!

Let’s be clear – this is not a “done thing”. It’s not a “best practice”. It’s a mistake, in most pitching situations. Even if it’s Uber you’re comparing yourself to, and not BikeBob or MotorcycleMary.

Before digging into why it’s a mistake, there’s an even more basic question to address. Why do we do it? Why do we, fierce individualists that we are, willingly attach our identities to something else?

(Photo: The Quint)

Why Do We Do It?

Three reasons:

• Helps explain the product. This is why it’s recommended for YC Demo Day.
  
• Shows a pattern. We all know that Venture Capitalists (VCs) are in the pattern recognition business. This just makes it easy for them to realize that you’re the next Uber. They better chase you with their money!
  
• An attractive narrative. Starting up is hard. It’s difficult to justify to your family – and yourself – why you’re abandoning a stable ship. In such a scenario, who wouldn’t like a little ego boost?

Calling yourself X of Y is attractive. Wouldn’t you like to compare your fledgling startup to a unicorn? But the moment I hear it in a startup pitch, it’s hard not to cringe. Why?

Why It is a Mistake

1. Gives the impression that you’re not solving a real problem

It sounds like you just read about a successful startup’s business model, and applied it to the first sector you could think of.

“AirBnb for cars: rent other people’s cars when they aren’t using them.”

It’s like you went to the neighborhood workshop and bought yourself a hammer. Now everything looks like a nail!

Unless an idea has formed organically from a real problem, it’s probably a bad startup idea.

(This is just one characteristic of a startup idea that sounds good, but is probably bad. Click here for a full list of such characteristics.)

Sometimes, it’s a real problem all right. But the solution doesn’t make sense.

An “Uber of intercity B2B logistics” is OK from a problem perspective. Manufacturing companies do need intercity logistics. But do they need it on-demand? No! A huge majority of customers transport loads often, on predictable timelines. They’d prefer negotiating longer-term contracts.

(Photo: The Quint)

I once thought of applying the Airbnb model to books. Once I finish a book, it’s lying on my bookshelf. Wouldn’t it make sense to lend it out to others who may want to read it?The problem is real - I need to buy a book to read it. But is this the best solution at scale? No. Not in a world where book prices are falling, e-retailers offer one-day delivery, and you can download a Kindle book in an instant.

Do I know the problem exists? In some cases, yes. In most cases, no. All I know is that the solution has worked. In another, unrelated sector.

2. It can constrain your imagination

The moment you start calling yourself “Uber of X”, you constrain your thinking. You fool yourself into believing you have a foolproof playbook, when in fact there are important nuances and differences that are critical to consider.

When Taxi for Sure started, one initial focus area was inter-city cabs. Do you think they’d have discovered the lucrative on-demand taxi market if they called themselves the “Redbus of taxis”?

Oyo Rooms, a successful startup in its own right, could have called itself “Airbnb of hotels”. But would that have worked? Would the founder have made the same decisions? It’s possible. But not probable.

3. It’s another stake in the ground you must defend

VCs are in the business of pattern recognition. They’ve internalized the patterns of successful startups to a level you never will.

They’ll point out nuances of those playbooks that don’t apply in your case.

I once saw a startup that was building the “Oyo of manufacturing”. Just like Oyo helps hotels use their idle capacity, this founder would help manufacturers deploy theirs. Only two tiny chinks in his plan:

• Hotels have average capacity utilizations of around 60%. Manufacturers have much higher utilizations. And moreover, they don’t want to be at 100% - flexibility is important. If a setup has 80% utilization, there’s no idle capacity.
  
  
• Unlike hotels, production is stable. A plant owner doesn’t want one-off users. He’d prefer someone who promises orders for at least 6 months.

Pattern recognition has a flipside too. An average VC sees 500 pitches every year, to select 3-4. So, they’re far more well-versed in the patterns of bad startups than good ones. Be ready for sweeping statements! VCs are far better at identifying bad startups than good ones.

(I’ve shared a more comprehensive list of patterns seen in bad startup ideas before.)

(Photo: The Quint)

So What Should You Do Instead?

Fundraising 101. Explain the problem you’re solving. Explain why it’s an important problem to solve. Then show your traction. Or flip the order, if your traction is more compelling than your problem description.

These are the two most important things, for your investors to make money. They’ll be listening hard.

Not only does this avoid the pitfalls above, it also serves your original reasons better.

It’s much easier to explain - The problem is now self-evident, and there’s a clear line-of-sight from problem to solution.

VCs would prefer identifying the patterns themselves - Let’s say you’re trying to solve a particularly hard logical puzzle. Would you prefer it if your friend told you the answer, or would you rather figure it out yourself?

So it is with investors as well (at least with me). It’s my job to predict the future, and I’ll feel more fulfilled if I detect the pattern myself.

It may not be flamboyant. But it’ll be a better ego boost when a VC tells you that you’re the Uber of X!

A far more insidious version of the “X of Y” template is “X of India”. I’ve written about it in this article. The names and sectors of the startups here have been disguised to whatever extent I can.

(The author is General Partner at OperatorVC, and can be reached at [e-mail])