DerpyNarwhal
DerpyNarwhal

What do VCs really look for in startups? How do they evaluate?

Asking this on behalf of many founders like myself, wanted to collate across multiple inputs: what is it that VCs really want to hear/see from a startup?

Would love to get inputs from VCs and other founders alike - basis your experience on what has worked what hasn't worked.

The usual suspects: obviously the founder credentials, TAM, insights, metrics. But, what else? Look forward to informed answers.

9mo ago
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GigglyBanana
GigglyBanana

Good ones look for building capabilities (read velocity) , selling capabilities, founder-product-market fit, conviction, traction, growth, industry familiarity, financial & organisational due diligence and other personality traits. Ref checks is also very important. Bad ones invest in FOMO, the more you are able to create, the better.

JazzyWalrus
JazzyWalrus

For B2C I believe they also look at the story of the startup

  • 19 yo old start-up entrepreneur, India's youth bringing impact
  • Female entrepreneurs employing 1000 rural women

Helps get easy media attention and enables hype driven sales. Atleast till they exit through IPO.

Interestingly every VC startup has a bittersweet emotional problem statement.

GigglyBanana
GigglyBanana

Great point, generally true across B2X . Any brand building asset is a great to have .

DizzyLlama
DizzyLlama

I talked to a startup founder(young 22yr old bloke). He got seed funding from Y combinator.

I asked him what that experience is like, how do they select people to incubate and invest in. He replied - They see how well you have thought of the problem. Do you have the metrics required for the problem, do you have the solution and it's expected metrics. Have you thought of making your company 100m$ or more worth in years to come(do you have the vision to scale it).
How well do you know the demographics, the minutest of the details of the problem etc.

That's all, once you have clarity on your idea and a plan to make it successful in the long term, you can get the funding.

JazzyWalrus
JazzyWalrus

If the VC fund doesn't make investments, the LP who funds these VCs will pull back and VCs will have to shut shop. 22 yo don't know this. VCs sell these portfolio companies to raise funds for themselves too.

JazzyWalrus
JazzyWalrus

YC's story could be different

GoofyNugget
GoofyNugget

What does Y combinator do actually? How people get funding from there?

SillyBiscuit
SillyBiscuit

YC is a spray and pray model with small valued bets on a heavily select set of startups. They hope to double down on startups that perform on the top percentile of each cohort.

FuzzyMuffin
FuzzyMuffin

Matrix india partners ka YouTube channel dekh le bro, sab mil jaega

SnoozyPickle
SnoozyPickle
Student9mo

Is it really that good, some other person also recommended it few weeks back?

FuzzyMuffin
FuzzyMuffin

It's awesome

CosmicLlama
CosmicLlama

Every point in the below thread is valid. Each comment appears to be from experience they look very possible and close to reality. Never dealt with a VC before. But I deal with greedy and entitled people every day.
What if VC investing is based on commissions in addition to equity?. Meaning, the VC strikes the deal with the founder not just for equity but also contracts from the company. The founder has to purchase/outsource something to a "designated vendor".
In our country companies keep track of how many times employees take a break. So, VC's investing million dollars in startups with just the belief they can make more money in the next round of fund raise seems to gentlemanly. Considering that founders buy luxury cars after every fund raise is an open secret.

WigglyUnicorn
WigglyUnicorn

On your point on kickbacks/ preferring specific vendors -

In a way this does happen. VCs promote their portfolio companies - if one start-up sells an HR platform, the VCs would push for this HR Saas product across their other investment startups.

But understand that VCs really want startups to grow multiple times in value - that's the only way they can make money. If VC invests 10cr in a startup, and asking start-up to take services of only a specific company - the 2-3cr they make in this commision is of little value.

DizzyDonut
DizzyDonut

Generally VCs look for conviction that the founders can grow the product , the organisation and give them an exit. Depending on the fund, itself which can have its own mandate, it can dictate what kind of market or founders or startups they are looking for.

VC partners have their thesis and if founders thesis match then its point towards a match. If founder have given previous exit then its a bonus point towards a match. If Founder knows how to navigate through multiple rounds then it’s easier to raise earlier rounds as it’s a bonus point. So on and so forth.

BubblyBiscuit
BubblyBiscuit

Exactly, the point that VC funds carry their own mandate and invest in startups/founders who can potentially provide them exit always gets missed

ZestyBoba
ZestyBoba

IIT Tag

GigglyBiscuit
GigglyBiscuit

Inky Pinky Ponky

SwirlyNoodle
SwirlyNoodle
Student9mo

They look for the hype !

GoofyBagel
GoofyBagel
TCS9mo

warch Shark Tank US n India both

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