What do VCs look for in a start-up?
From the start-up’s point of view, pitching to investors could be an intimidating process in which start-ups have to present their heart out to convince the investors that they are the next unicorn and thus worth investing in. A pitch deck to present to the investors might vary depending on the requirement of the investors yet it is generally includes a lot of information. It could range from the most basic one such as the problem and solution, market size and business model to more hypothetical one such as financial forecasting.
However, it is a different story from the investors’ perspective. As much information as a start-up might pitch, investors actually care the most about two factors. They listen to find out the answers for two and only two questions. Let us dive right in each of these two factors and find the secret sauce for success in raising fund from VCs for your start-ups.
- The people – Is this the right team to make this idea happen?
Yes! We all know the importance of the right people in making things happen. When asked the question of whether he would normally invest in the idea or the people, Bob Stearns, founder of a Wellesley-based venture capital firm, answered without a second of hesitation: “In fact, I have never invested in the idea. It is always the people”.
But wait… What does RIGHT mean, exactly? How can one know if it’s the right people or not?
According to my boss at VIC Partners, investors could tell if the start-up has the right people or not only after 5 minutes of the meeting. As a matter of fact, there is no specific set of characteristics that one has to own in order to show that he or she is the RIGHT one. However, talking to several VCs taught me that the right people oftentimes have the commonality of being ambitious, determined, open-minded and optimistic. Bob also added that he prefers working with someone who has failed before because this shows that he or she is not easy to give up.
- The market – Is the market big enough?
This question could be interpreted as: Is there money to be made out there?. The reason why this is one of the two most important questions for VCs is simple. Who are VCs? They are investors. What do they want? Money. (Of course, this is not the case with every investment and there are always exceptions)
This question promptly shows the importance of the market research with a start-up, especially one that is raising seeds round. When pitching to investors, founders need to make clear that the market size is big enough and the company has the chance to shoot for a relatively high proportion in that market.
If a start-up manages to answer these two questions and demonstrate the answers in actions themselves, there is a 99% that no investors could say ‘No’. The remaining 1%? Inshallah!