3 things VCs are looking for in your startups
Insights from my discussion with a partner at Inventure.
👋 Hey everyone and welcome to Explore, your weekly Startups and VC podcast. I’m Hugo Rauch, the writer of this newsletter and my goal is to help founders accelerate their growth and successfully fundraise.
This week’s insight comes from my podcast with Lori Kokkila (partner at Inventure). Listen to the episode on 🟠Substack, 🟢Spotify, 🟣Apple Podcast.
Summary
✅VC-Startup Fit
📈The market
🤝The team and founders
✅VC-Startup Fit
It’s no surprise to anyone: VCs are busy.
They typically review thousands of companies per year but invest in very few.
As Lauri told me:
“Last year, we looked at 2,400 companies and invested in less than 10. We are 6 deal makers. So it's a lot of companies per person.”
Therefore they need a mechanism to filter the list of companies.
“You're kind of slicing an orange where you go deeper and deeper layer by layer. First I typically look at: does it make sense as a fund? Is it the right geo, right stage etc?”
What Lauri is referring to is the investment thesis of the fund.
His fund (Inventure) takes early bets in Nordic and Baltic founders.
If you’re not meeting this thesis, it’s almost always a “no”.
As a founder, you should research potential VCs and filter them by their thesis. Only send your deck to fund matching your vertical, business model, growth stage and geo. Otherwise you are loosing your time.
📈The market opportunity
If you match the investment thesis, then they will look at your deck.
But only for 5 to 10 minutes (remember the resource constraint stated earlier).
The first questions Lauri ask himself is:
“Is that something that's big and attractive enough? Is that something we've already seen and are not comfortable about? Do we feel a big market opportunity?”
The goal is to understand if your company can become big enough to make VC economics work.
In their portfolio:
a lot of companies will fail
some will bring 1x to 10x return
a few will bring incredible results
The last one is the type of companies VCs are betting on to get the fund’s return to 3x.
As founder, ensure that you’re building in a big enough market if you want to be a VC-backed startup. Clearly show the upsides that you can capture if you're successful. VCs need to see that you can bring incredible returns.
🤝The team and founders
At the early stage of a company, your team is your best asset.
In Lauri’s words:
"At the end of the day we're investing in the individuals."
An idea is worth nothing without great execution. VCs are looking for :
founders strong enough to lead the company
a team equipped with the right skills for the challenge.
In Lauri’s words:
“What's their pedigree? What's their founder market fit? I often try to think about why would this team be the best possible team in Europe to build this?
Remember that VCs receive 1000s of decks per year. Some of which might be building similar products. Their goal is to identify the best team for the job.
In your deck show why you and your team are uniquely qualified for delivering a great startup. If you're an early stage startup, this should be one of your first slide. You can think about this as a job interview, try to convince them to hire you for the job.
If this was useful don’t hesitate to share this newsletter with a friend.
Listen to the podcast on: 🟠Substack, 🟢Spotify or 🟣Apple Podcast.
Hugo 👋
Great insights