How Do Venture Capitalists Evaluate Startups? An Interview with a VC.
Andy McLoughlin is a venture capitalist at Uncork Capital. Andy recently shared some time with Burkland's Head of Marketing, Kate Adams, to answer a few questions we frequently hear from startups. In the first portion of our interview with Andy, he talks about what VCs look for when they invest in a startup.
Q: What are VCs looking for when they make an investment?
There are three main things we look at when evaluating a startup:
- Market opportunity
For me, the team is the most important. The team is going to be together for most likely the next 8-10 years. If you are in it to win it, you have to spend a lot of your time with your portfolio companies’ teams. So there has to be a connection.
For me, the team is the most important.
The team also needs to have deep technical and proprietary knowledge of the market and product. A good example was when we were looking at a startup in the quantum computing-powered AI protein discovery market (all the buzzwords!). These are three very different and highly specialized fields. The team all had PhDs, strong work experience, and had completed studies in the different fields. It gave us confidence in the team.
For product and market opportunity, we need to see these questions answered:
- Why is this a problem?
- Why your solution?
- Why now?
- Why your team?
If you answer these in a compelling manner and have a strong team, you will likely get the investment.
Q: What else do founders need to focus on when crafting their pitch?
Founders can get overly concerned about certain KPIs and metrics in their seed pitch decks. They worry that they need a certain ARR or KPI and if they don't, they can’t raise a seed round. It’s definitely more nuanced than that - we have not invested in startups with a strong ARR and have given investment to companies with little or no revenue. A certain metric, revenue, or KPI is not the reason for an investment. It is only one part of the story. More important is showing that the market opportunity is big enough, the acceleration potential of the startup, and the potential to be huge is there. We don’t expect founders to be experts in VC language and metrics. We want them to be experts in their company.
And that is why storytelling is so important. If you can’t tell your story in an impactful way, you probably won’t get the funding. This is more important than having certain metrics in your pitch deck for Seed or Series A funding - it is your storytelling.
If you can’t tell your story in an impactful way, you probably won’t get the funding.
We see thousands and thousands of companies a year. We invest in only ten to fifteen. Generally, the ones with the strongest teams and storytelling around their product and market opportunity, not certain KPIs, often get the investment.
Read the second portion of our interview, where Andy shares tips to help startups approach and communicate with venture capitalists.
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