4 Things VCs Look for When Funding Startups

So you are determined to be a full-time entrepreneur. You have a groundbreaking idea in mind to develop your first product or service, design a business model, and even come up with a catchy tagline for your newly born startup. The whole plan seems to be perfect, but then the critical question hits you: where do I get all the money to start the business – for real?

For some people, being an entrepreneur might sound like a cool job with high prestige. However, as the old adage goes, ‘easier said than done’. Starting your own company is not an easy feat. It comes with a set of challenges and hurdles that should be handled smoothly along the entrepreneurship journey. In order to turn an idea into an actual and tangible concept, you need to raise enough capital to execute the plan successfully.

At first, dipping into your own savings or borrowing from relatives and families are sufficient to keep your startup alive. However, when your startup is getting more recognition from public and there are increasing demands for your product or service, you will have to grow the team and expand the business. Taking funds from venture capitalists (VC) can be a great way to secure the financial support you need to start and develop your business.

VC is a type of private equity, where the firms provide financial support for small and early-stage business which demonstrates growth potential. However, there are high risks that VCs should take when investing their money in a startup. Owing to this reason, they should make careful consideration before funding an organisation. If you are interested in applying for VCs, read on the following 4 things VCs look for when funding startups:

  1. Compelling idea and value

It is crucial for investors to ensure that they invest their funds to the right startup. As a founder, you need to demonstrate a compelling idea and value of the product or service that you want to offer to the market. Your product or service should have a competitive edge, something that makes them unique and different from other competitors.

  1. A solid dream team

Having a strong teamwork in your startup is substantial to attract VC’s attention. Investors want to make the best bet by investing in your company, so they have to make sure that the fund is handled by the right hands. Therefore, before sending your VC proposal, first you should build a solid team comprised of skilled talents with complementary skills and collaborative zest.

  1. Visible market size

In today’s competitive market competition, VC investors want to see whether your company has a chance to grow and succeed or not. That being said, it is important for startup founder to have visible market size and target customers. One way to do this is by releasing beta or pilot version of your product for the potential customers.

  1. Liable financial management

Final stage before VC signing the paycheck is to assess your financial management. Among most common questions include: How much money do you need? Who will handle the cash flow? Where will the money be spent? And how? If you can demonstrate clear financial plan and ensure them that you can monetise the fund, only then you can raise the capital from VC.

Next read: Top 5 Keys to Build a Winning Startup Team