How to evaluate your startup through the lens of a VC?

Every VC is different. There are thousands of funds and investors within those funds, and they vary tremendously even within a fund. Some love crowded spaces, some will only invest in blue sky verticals. Some will only invest in Ivy League grads, others don’t like high-pedigree founders. Some will only invest in startups that came via a trusted referral, others don’t take referrals at all.

Within our own portfolio, we had many cases where founders would pitch upstream investors (seed and Series A), and one partner would toss them to the side and another would fall in love with the company and founders. This is super relevant because every investor will evaluate you and your company differently–sometimes dramatically so. That means that there is no canonical value or perfectly uniform way to evaluate your startup, just perceptions distorted by the subjectivity of busy humans.

Every funding stage is different. You mentioned in your hypothetical that you have an MVP, so that means pre-seed or seed rounds. How investors evaluate investment opportunities at different stages varies wildly too.

At the pre-seed stage, for example, investors tend to place a lot more emphasis on the perceived strength of the founding team and early team members and market opportunity.

In the seed stage, a lot more emphasis goes toward indicators of traction and your ability to recruit outstanding team members. For example, I’ve heard from a good handful of seed investors that they won’t look at startups that are doing less than $500K in ARR.

At the Series A stage, the focus shifts even more toward your metrics since your company presumably has much more time series data on things like revenue growth, engagement and retention rates, CAC, LTV, and so on. The attention also generally shifts to the composition and quality of your team. Many gurus and experts miss this critical dimension, but it’s super important in my mind to understand where to put the emphasis as a founder.

Write an investment memo. I LOVE the idea that u/Known_Impression1356 proposed of writing an investment memo. Even though you might not know the first thing about what an investment memo should look like, it will really help you get into the mind of an average investor, particularly a junior investor who often performs early diligence.

A typical investment memo will contain topics like a company overview, market and competitive space, differentiation, traction, team, customer references, founder references, risks, etc. I could write a lengthy separate post or even a book on how to write an investment memo, but the key is not to over-think it, and just do it.

For a pre-seed startup, the main areas to focus on are the overview to make sure that your company’s description does not sound like any other one’s. A super simple way to test it is to simply take your one-liner or description and stick it into Google, and if a competitor comes up in the top 10 results, your positioning or description are not differentiated. The other areas to focus on are market and team.

For the market, I highly recommend doing a bottom-up market sizing rather than a bs top-down sizing. What are you expecting to charge for your product and multiply that by the total prospective number of customers. Also, get detailed. You should know your space so well that you could write a robust white paper on it. Who are the main players, what are notable exits, who are the key investors, how are macro economic trends affecting your market, etc.

For the team section, write about each key members personal and professional history. Focus on aspects of your history that demonstrate hustle, tenacity, and efficacy. Articulate how the founding team came together and decided to dedicate their lives to working on your particular problem space. Also mention the sober truth. Where are the gaps in the team’s experience or skillset? What are notable times when you each have failed?

Final pieces of advice. I realize that I’m going on and on and probably could write a heck more, but hopefully this gives you some good ideas and starting points. The two biggest pieces of advice I would give you is focus on building a great business for your customers and not investors, and fundraising is sales, which hinges on finding the right customer rather than trying to convince everyone to buy your product, which is an investment in your company in this case.

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