Venture Capitalists are known to invest in unicorns that prove to be home run for their LPs, but that depends on many factors like valuation, deal terms, market timing, etc. In any case here are a few basic things VCs look for while investing:
1. Technology
An innovation changes the way an existing industry functions, also helps establish a new market and value network, displacing an earlier technology or a way of doing business. Is there a problem within the industry? What problem are you solving? How can your technology add value to that process?
2. Revenue Model
Great ideas/technology needs to be backed by a solid revenue model in order to attract customers as well as attain profitability for the company to be an attractive investment opportunity for a VC. Can that technology be converted into a profit-making product?
3. Industry Analysis & Competitive Landscape
A startup needs an ecosystem to thrive upon; thus, it is very important for a company to understand the market dynamics, its impact on their industry, product, and also have a good understanding of the competitive landscape in order to achieve long-term success. A creative technology needs to scale, and a thorough analysis helps gauge those risks and rewards. Is there a product-market fit? Is there traction in the form of early customer validation and signs of success?
4. Entrepreneur / Team
At NIN Ventures, we start with the captain of the ship; as entrepreneurs build companies and not the other way around. Some of the qualities VCs look for in an entrepreneur are the ability to dream big with ideas that scale, certain personality traits, and work ethics like being focused, disciplined, and hard working. It’s essential to have industry expertise and knowledge, or surround yourself with people who complement you. However, the flexibility and choices an entrepreneur / the team makes determine the future of the company.
5. Financials & Execution Strategy
An amazing entrepreneur with a creative technology, a solid revenue model, and a good knowledge of the competitive landscape goes to vain, if the company does not communicate effectively or has a good execution strategy. Having a clear financial plan, understanding of metrics i.e. growth and burn rates, is a bonus.
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