When is a niche too small?


7

I'm interested in developing a product for the sport of paintball. It has an estimated 10+ million participants (3rd largest extreme sport), though I'd be targeting the real enthusiasts of the sport (playing ~15x a year), which is around 1-2 million.

So now that you have a ball park idea of what my niche is, does it seem too small to seek funding and develop a product for? I know this is somewhat broad of a question, but I'm curious how to approach this.

Do VC's only fund the big ideas or do they fund good ideas, regardless of the market cap?

Funding Niche

asked Aug 24 '12 at 23:43
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Tbowman
217 points
  • I wouldn't seek VC funding - perhaps find enthusiasts who have money to invest or some paintball businesses to fund some of the work an become partners. A better choice might be to bootstrap/self-fund. Before you do any of it - go talk to the market/potential customers so you know if there is an interest/market. – Tim J 8 years ago

4 Answers


7

When it comes to seeking funding from VC's or Angels - if you actually think that's a viable form of funding, quite frankly you need to rethink your financing strategy. Sorry to be blunt, but in my line of work (I'm the co-founder of an emerging business incubator and my co-founder runs another emerging tech incubator that I work closely with) that's the biggest mistake assumed by many of the companies I encounter. Typically only 2% of all ventures pitched get funding at all from Angels and VCs.

As far as a niche, typically VCs will seek literally a 15x return minimum on their investment while Angels I believe see a 20x return minimum. As far as funding goes - VCs usually do rounds of $1mil and more - sometimes $500k

Angels - one of my business partners is one, which is how I know this information - usually you can go as low as $5k to as much as $1 million - the key difference between an Angel and VC is that an Angel (as the name implies) invests to help others or they do it as a side investment whereas VCs simply care about the money and the like.

As far as a minimum audience, that's really hard to define. Quite honestly I've found from my experiences that if you have a good concept and a good execution strategy, you can get funding provided there's a reasonable crowd. The definition of "reasonable crowd" varies greatly from industry to industry - i.e. a high end car might have a smaller niche but you'll have a higher profit margin. On the other hand, a mass produced product will need a much larger market due to the lower margins.

My best advice to you for funding however is to really try starting small and scale accordingly. You can't go to VCs and Angels without a proven concept regardless - so you will likely either need to take out a loan or bootstrap. Once you have your prototypes and financial figures in order, you'll be in a position to pitch.

answered Aug 25 '12 at 05:08
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Theonlylos
397 points
  • No apology necessary, I greatly appreciate your feedback. I'm new to the startup scene, so I will admit that I have a ton to learn (which is why I am here). My thought process is that, after defining a clear cut plan, I will finance the project myself to have a working demo together. At that point I would seek funding in order to develop a more complete product. I'm hoping that this is an effective approach. – Tbowman 8 years ago
  • Thanks very much - and no problem about being new. We all gotta start somewhere and quite honestly we're always learning. In general it's always best to be as self-sufficient as possible because there are many pitfalls to outside funding (heavily described on the forum) and also it's very a very rough field, but definitely it's good to keep your options open - just don't fully expect that one day you'll sell the project for a hefty windfall. – Theonlylos 8 years ago

1

If you have a market of 1-2 million people who might purchase a full-blown paintball franchise, you could get investors. Something with a lower cost like Paintball of the Month Club, may not be so interesting.

What is it about the product and your ability to create it requires venture capital? Maybe you want to look more for an Angel investor.

answered Aug 25 '12 at 00:04
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Jeff O
6,169 points
  • I suppose I shouldn't have been so specific - any funding is desirable, not necessarily just VC funding. My idea would take little to get off the ground. Though the income that could be generated from it would probably peak at ~$1 million/year, assuming everything was in an ideal state. – Tbowman 8 years ago
  • Perhaps I should read more into what merits an idea funding before I continue. – Tbowman 8 years ago

1

Your question of 'good' ideas vs. 'big' ideas is quite subjective. I assume you mean that a 'good' idea may apply to a niche market, but a 'big' idea would apply to a larger market. In many cases a 'good' idea and a 'big' idea can be one and the same thing.

In my experience, it is always best to begin within a niche (but not a micro-niche), dominate that niche market (with the correct strategy, funding, marketing, luck, etc) and use that position to expand to other niches within the same category (in your case paintball). That way you, over time, begin to dominate the larger market segment. Think of niches as 'beachheads' that allow you to take over a larger market over time.

Often, a strategy to capture a 'big' market immediately off the bat is not a 'good' one, as the market will be too large / complex / difficult to control / understand, thus a 'good' market strategy is to be 'big' in a niche market.

answered Aug 26 '12 at 18:12
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Josh
11 points

1

I agree with some of the responses here that this might not be the proper niche for seeking VC funding; however, it would be something better suited for looking towards heavily funded enthusiasts. That however leads to another issue...

As some quick background here, I'm guessing I come from a fairly similar place as yourself. I played paintball religiously for about 8 years. I started locally back in South Dakota and went all the way up to playing nationally for the Omaha Vicious organization back in 2007, shortly before they went pro. Along with that, I actually had the outlines of a venture that I was looking create which I still believe has potential in that industry, but there are a few things you want to make sure you take into account with that industry.

  1. This is a luxury sport. Anyone who plays it at a high level or even for on a consistent basis is having to put a lot of money into just continuing to play the sport. That leads to a smaller margin of their money that would still be considered available to your venture.
  2. No one gets rich playing this sport. Ollie Lang and maybe 3 or 4 other individuals make a decent living on this (middle class). Everyone else is still working their full time jobs to support this habit, no matter how successful they are on the field.
  3. The only companies that get rich off this sport are the main paintball manufacturers, a few accessory companies, and the 3 or 4 major companies creating markers. Everyone else (especially field owners) are dirt poor, due to the lack of margins in the sport for everyone else.
  4. Their is a large divide in the sport between speedball (the small portion of the millions you're referring to) and woodsball, which is the more popular but less marketable flavor of the sport. Very few things can span that divide, so you're probably looking at a smaller niche to start with there.

All this has less to do with your initial question about VC's and more about the industry as a whole, but I thought it would be worth mentioning in case there were any of those factors you hadn't considered yet. All of this being said, the beauty of the small margins and the lack of money in the sport leads to a market that is very undeveloped in many ways, which allows for plenty of room for niches, provided that they can stay afloat through their growing stages.

Best of luck to you!

answered Sep 1 '12 at 00:04
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Chris
41 points

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Funding Niche