Entrepreneurs seeking support for their seed stage ventures should demonstrate one or more of these four principles, coined by Morningstar as the economic moat advantage. These are the 4 standards by which we evaluate the eligibility of an investment.
1. Stamp of Approval by regulatory body
The product or service offered should have regulatory licenses or intangible assets, for example patents, that cannot be matched by competitors.
2. Switching costs are high
Entrepreneurs we work with place value in what the consumer wants. Their product or service is customer –driven a difficult time giving it up or “switching” to the competition. This advantage provides the entrepreneur with pricing power for the product or service.
3. Stickiness and network economics
As an entrepreneur, staying at the top of the mind of your consumer is as important to your success as the quality of the product or service itself. Stickiness refers to how well the product or service resonates in the minds its intended audience and its influence on their future behavior. We are attracted to entrepreneurs who are trailblazers in their industry and get buy in from consumers and allies. Being able to define what problem your product or service solves is the first step in attracting the right network for support. E.g. with sustainable network economics, if more companies are involved in environmentally friendly production, the easier and cheaper it becomes to produce new sustainable products.
You are confident that there is a market for your product or service and on a small scale, you can run a really lean, tight ship, but can it sustain given the opportunity for major growth? Can the service or product be replicated at a decreasing cost and effort? A venture built with a lean infrastructure in place is scalable and more attractive to investors.