After reading several hundred accelerator applications, I've learned one common theme. Teams understate negatives and overstate positives. Personally, I like a bit of balance and intellectual integrity as it comes to applications. But founders insist on trying to "hide" things. The area that I'll touch on today is understating competition.
Why do founders and teams understate their competition? There are several reasons; most are bad. If you state that you have no competition or a few competitors, you better have put some effort into researching this fact. Let's look at the reality around competition.
If the VC/MD (...probably the associate, lol) does their own due diligence on your company and find out that there are 25 competitors, not 3 competitors (like you stated), you instantly lose credibility. One, you are too lazy to research competitors to your own company or two, you are too incompetent to do adequate research. Both realities reflect horribly on you. Just be forthright. If you have a competitive market, then STATE this and give a credible reason why you will be successful.
Just because you listed your few direct competitors, doesn't mean you shouldn't tell us about your indirect competitors. For people that may not know, direct competitors are competitors that deliver a similar product or service. Indirect competitors are competitors that could potentially enter your market and cannibalize your clientele. Understanding both of these types of competitors is key to providing a clear view of your industry. Not telling us this information is bad! We will find out.
This may come as a shocking, counterintuitive truth, but competition in an industry is a GOOD thing. Before Google, there were a TON of other search engines. Before Facebook, there were a TON of other social networks. Those CEOs figured out the key point that the other CEOs had missed. If there is a company that actually is in a sector with very little competition, either it's a gold mine or it's a red flag. It can be worrisome because it's a sign that this is an industry where several companies failed or left the market because there were too many barriers to success. Competition generally means that innovation can be created in a proven market.
Remember, competition isn't a bad thing. Intellectual dishonesty around competition is a bad thing. You may lose credibility and miss out on an opportunity for investment. The best route is to be transparent and state your competitive advantage.