Small Businesses

What VCs look for before deciding to invest in your startup

  • 4 min Read
  • March 7, 2016

Author

Escalon

Table of Contents

Venture capitalists (VC) are often integral to the success of a startup. Today we are looking into what VCs look for before deciding to invest in your company.

By discussing these specific things, you’ll be better able to provide the venture capitalist with the material and information he or she needs to make the decision on whether or not to invest in your startup.

The team

Yes, venture capitalists want to partner with startups that have a large market and will turn a profit, but in the beginning they are also looking to partner with a strong team.

A great team has chemistry and respect for one another, but more importantly their strengths and weaknesses complement one another so when looked at as a team, there are no weaknesses.

If the VC you approach for funds isn’t impressed with your management team, you’ll be hard pressed to convince them to invest no matter how great your product is. Do what you can to create a great team with impression-worthy bios, and you’ll have taken your first step towards funding success.

Market size

Next, VCs are looking for your market size before deciding to invest in your startup. If you’re trying to sell tractors in a market that caters to new moms, you are probably out of luck.

VCs want to know they can make money through their investment in your startup, and they want to know your startup will hit it big some day in the very near future.

Potential VCs usually want to invest in larger markets because that leads to a better chance of success.

Do your market research and back it up with statistical data to show VCs the potential in your chosen market.

Momentum

This is a word that is sometimes confusing to startups. After all, you want funding to increase your momentum, right?

When it comes to momentum, VCs are really looking for “traction.” They want to see your numbers, current partners, revenue, etc.

It’s a good idea to visit your potential venture capitalists early, in the first days of your startup. This helps them see how you grow over time and gives them the information they need before investing millions of dollars in your startup.

For example, if the first time you met with the VC, you had sold 100 products, but six months later, you’ve sold 5,000, they can see that you’re moving the needle. Likewise, if you have beta customers or good press coverage, that can help, too.

VCs will especially appreciate the initial and subsequent meetings with you if you don’t know them. It gives them a chance to see how you work, learn to trust you and have measurable outcomes they can use to decide on investing in your startup.

An overview

You also want to go to your meeting with a potential investor with an overview of your startup. Here are some things to have prepared in a professional manner:

• Explanation of what your startup does and stands for.

• What’s unique about your startup.

• Why someone should purchase your product/service. For example, what problem does it solve.

• The opportunities that exist in your market.

• How big can you get, or how big are you willing to grow.

• An analysis of your goals.

• What you’ve learned thus far since your release.

• A demonstration of your product/service.

• Any new things you intend to add to your startup’s lineup in the future.

• An analysis of your competition and why you think you have an advantage or unique product to offer.

• How you compare when it comes to features, performance and price when stacked side-by-side with your competition.

• Any barriers you foresee.

Final thoughts

Now that you know what VCs look for before deciding to invest in your startup, you will have a better understanding of what to prepare before seeking capital.

A potential venture capitalist wants to understand your financial situation and your current burn rate, as well as your one, three and five year projections and how you came to them.

Your VC will also want to look at your debt load. Most importantly, they want to know when your startup will be profitable.

Are you a new startup? Are you looking to get your new business off the ground and watch it rise to success? We are here for you. We can help answer your questions and guide you through the process. Outsource your finances, payroll, HR duties and more to us. Contact Escalon today to get started.

Image: Olu Eletu

Talk to our team today to learn how Escalon can help take your company to the next level.

  • Expertise you can trust

    Our team is made up of seasoned professionals who bring years of industry experience to the table. You gain a trusted advisor who understands your business inside out.

  • Quality and consistency

    Say goodbye to the hassles of hiring, training and managing in-house finance teams. You will never have to worry about unexpected leave of absence or retraining new employees.

  • Scalability and Flexibility

    Whether you’re a small business or a global powerhouse, our solutions scale with your needs. We eliminate inefficiencies, reduce costs and help you focus on growing your business.

Contact Us Today!

Tap into the latest insights from experts in your industry

Accounting & Finance

Tax Strategies for Succession Planning in Family-Owned Businesses 

Succession planning in a family-owned business is a delicate dance that involves not only leadership and emotional considerations, but also...

Accounting & Finance

The Role of Financial Modeling in Strategic Planning 

Financial modeling is a cornerstone of strategic business planning. It involves creating numerical representations of a company’s financial future, allowing...

Accounting & Finance

The Importance of Financial Literacy for Business Owners 

Running a business isn’t just about having a great product or service – it also requires a firm grasp of...

Accounting & Finance

Tax Implications of Remote Work: What SMBs Need to Know 

The rise of remote work has opened exciting possibilities for small and medium businesses – access to a wider talent...

Leadership & Growth

Succession Planning: Preparing for Leadership Transitions 

Change is inevitable in business, and one of the most significant changes a company can face is a leadership transition....

Accounting & Finance

Sales Tax Compliance in the Digital Age: Challenges and Solutions 

The rise of e-commerce and digital business models has revolutionized how companies reach customers, but it has also added new...

Leadership & Growth

Implementing Lean Management Principles in SMBs

“Lean management” might conjure images of big manufacturing plants fine-tuning assembly lines, but the principles of lean are highly relevant...

People Management & HR

Developing a Competitive Compensation Strategy for SMBs

For small and medium-sized businesses, a competitive compensation strategy is key to attracting and retaining the talent needed to grow...

Accounting & Finance

The Role of Financial Reporting in Small Business Growth

Financial reporting often appears to be a routine exercise, but for small businesses, it can be the difference between reactive...