Two Things VCs Look For

VCs look for good bets that have a chance of being very, very successful, and while doing so, they often put the heaviest weight on the team and market.

Team

The most important component is the team. Most VCs decide if the founders are winners in the first few minutes they chat, and it’s difficult to change their minds once their opinion is set. A good founding team usually has two or three domain experts who have a strong relationship. This is because building a startup with only one founder is too difficult and is a vote of no confidence – it implies that the founder was not able to convince any of his friends to join him in starting the company.

Once you have a team of founders that genuinely like one another and work well together, what matters most is determination and flexibility. You can’t be a team that gets demoralized easily since you’ll face a lot of tough challenges, and you need to be ready to change your plans on the go.

Finally, you must know confidently and truthfully why you are working on this idea, why your startup is worth investing in, and what milestones you will achieve if you get funding.

Market

While founders see startups as ideas, investors view them as markets. Along with a strong team, a startup worth investing in must have a plausible path to capturing a sizable portion of a sizable market, as measured by Total Addressable Market: Total Number of Customers x Average Price they are willing to pay per year for what you’re making. This is the maximum size you could grow into in the future.

Most startups that achieve significant growth also do so because of a specific external trend that they’re riding, so know if you are in or moving into a market that is growing by default, as investors will be worried about the long-term viability of your startup if you are in a market that is stagnating or shrinking.

Lastly, think about why you’re doing this right now. Why hasn’t someone else already done this if it’s such a brilliant idea? Ideally, the explanation would be that it just recently became a good idea because something changed or no one else noticed.

Standards

Depending on the stage of your startup, VCs will also apply different standards. A Pre-seed startup only needs to be a promising experiment worth funding to see how it turns out. Whereas a Series A startup needs to show the experiment worked.

To get funding, your team and market must possess all of the elements of a good bet, and even then, VCs understand that the odds are stacked against you. This all starts with knowing that you’re investing your own time in a good bet. If not, why are you even working on your startup in the first place?