What are startup moats?

A startup moat is an advantage that makes it hard for other companies to copy what you do. Like the water around a castle, it keeps competitors out. In practice, a moat can be a competitive advantage, a barrier to entering your market or anything else that makes your business defensible.

Why do VCs ask about moats?

VCs (venture capital investors) ask about moats because they want to invest in startups that are hard to replicate. Many VCs worry about one scenario: they invest, and soon several other startups appear and do the same thing easily.

I write in the CEO Briefing on moats that every VC will think about your moats or ask about them. So the best moment to prepare your answer is before the first investor meeting.

What counts as a moat?

What qualifies as a strong moat depends on your company. The CEO Briefing names these examples:

• Proprietary technology: technology with its own IP (intellectual property, such as patents) that is hard to replicate.
• A strong position in a niche: brand awareness in that niche, leading companies as customers and a product with strong lock-in effects, which means customers find it hard to switch.
• The team: founders who worked in the industry for many years and know it better than anyone else.
• Regulatory approvals: for example an approval by the NHS, the UK's National Health Service, in health tech. In many industries you can only sell after regulatory processes that can take years. Completing them can be an immense moat.
• Deep research: a product that rests on years of research on the topic.
• Access to buyers: a community of the people who decide on purchases in your category.

How do you find the moats you already have?

Ask yourself what would happen if a smart team with enough money tried to do what you do. Then answer in detail. Many founders have moats they do not see, because those advantages feel natural to them.

I once coached a founder who was preparing to raise a bigger Series A round. The pitch did not mention any moats. When I asked about them, the founder was silent. So I asked again: "What if a smart team with enough money would try to do what you're doing?"

That question brought out three moats:

1. Research: the team had done deep research on the topic for more than five years, and the product is built on it.
2. Industry knowledge: the co-founder had worked in the industry for 12 years. In the founder's words, nobody knew the industry better or spoke the language of the customers better.
3. A community of buyers: before founding the company, the team had built a community of more than 400 influential leaders. These leaders are typically the buyers and decision-makers for this product category. The team brings them together at network events and in a Slack group.

None of the three can be copied easily. None of them was in the pitch.

How do you show your moats in a pitch deck?

You choose your top three moats and make sure the deck and the pitch repeat them. The CEO Briefing on what to do before you create your pitch deck describes this as an exercise you complete before you draft the storyline or design any slide:

1. List: write down everything about your company that is hard to replicate.
2. Prioritize: rank the list.
3. Pick: choose your top three moats.
4. Build them in: make sure all three appear in your storyline, deck and pitch.

The same article recommends a second list next to it: the three most compelling arguments for investing in your company. A strong moat is itself a compelling argument.

A moat does not need its own slide that says "Our three moats are". Often it works better as one line inside another slide. On the solution slide: "Our solution was built on more than five years of research at (…)." On the team slide: "My co-founder spent 15 years in the (…) industry, selling to customers who are now in our ideal customer profile." The ideal customer profile is the type of customer a startup targets.

Without that clarity, investors leave the pitch with random facts about your startup. With it, you decide which impression stays with them.

How do you bring up your moats in a VC conversation?

You steer the conversation toward them, even when the VC asks about something else. Many VCs now read the deck in advance and skip the formal pitch in the first meeting. The meeting becomes a series of questions and answers. If you only react, you depend on the VC asking the right questions. Often they do not, because they do not yet know what is most compelling about your company.

Communication trainers teach interviewees to reframe a question so they can give their best answer. The same skill works with investors. The moment has to fit, though. Compare two ways to mention a co-founder's six years of research:

• Forced: the VC says it is hot today, and you answer that your co-founder was sweating too and, by the way, did six years of research.
• Natural: the VC asks how you differ from a competitor that seems to do something similar. You explain that you build on a different foundation, and that your co-founder did more than six years of deep research in the field.

Repeat your moats wherever they fit. Repetition helps investors remember them.