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What VCs look for before deciding to invest in your startup

Posted by Kanika Sinha

March 7, 2016

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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

Author

Kanika Sinha

Kanika is an enthusiastic content writer who craves to push the boundaries and explore uncharted territories. With her exceptional writing skills and in-depth knowledge of business-to-business dynamics, she creates compelling narratives that help businesses achieve tangible ROI. When not hunched over the keyboard, you can find her sweating it out in the gym, or indulging in a marathon of adorable movies with her young son.

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What VCs look for before deciding to invest in your startup

The team

Market size

Momentum

An overview

Final thoughts

Author

Kanika Sinha

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