What vc's look for

What do VC’s look for in a Poten4al Investment

The Top 10 List 1. Team 2. Size of total available market (market opportunity) 3. Can the company be a market disruptor (new business models) 4. Poten4al for superior growth momentum 5. Focus on reach and engagement as a precursor to mone4za4on 6. Forgo near term profitability for superior top line growth and returns 7. Fully integrated, homegrown solu4ons (not just licensed technology) 8. Look for deep moats -‐ barriers to scale more important than barriers to entry 9. Definable "network effects" that drive sustainable compe44ve advantage 10. Team

Here is another view… •  The Physics –  Product Market Fit –  The “secret sauce”, barriers to entry, barriers to scale •  The Chemistry –  The founding team dynamic (2+ founders, tech skills a must) –  Entrepreneurs must demonstrate humility and conﬁdence –  Flexibility and ability to “move with the market”, resourcefulness •  The Mathema4cs –  Business model –  Opera4ng plan

A few addi4onal thoughts… •  There is no “perfect” team and no “perfect” idea and no formula •  Ideas are a dime-‐a-‐dozen, the ability to execute is not •  The funding process is usually 4me consuming, frustra4ng and not for the faint of heart

Team •  The team MUST have an acute understanding of the space they are targe4ng –  Includes buyers, poten4al partners, compe4tors (present and future) •  The team MUST have some sort of unfair advantage –  Market knowledge –  Ability to create and con4nue to create a superior product –  Rela4onships •  PASSION – this is cri4cal not only to succeed with customers but also to recrui4ng great people •  BONUS: The team should have worked together before

Product-‐Market Fit* •  “The only thing that maiers is Product-‐Market Fit” – Andy Rachleﬀ •  This includes: –  Market MUST be large and growing fast to give the entrepreneur some room to make mistakes –  The product MUST solve a key problem for the market –  The product MUST be cri4cal for the decision maker to be successful •  You cannot aﬀord to “educate” the market – either the market is ready for your product or it isn’t •  DO WHATEVER IS REQUIRED TO ATTAIN PRODUCT-‐MARKET FIT •  Includes changing the team, changing markets, changing the product – no sacred cows * Derived from hip://pmarca-‐archive.posterous.com/the-‐pmarca-‐guide-‐to-‐startups-‐part-‐4-‐the-‐only

More from Andy Rachleﬀ •  When a great team meets a lousy market, market wins •  When a lousy team meets a great market, market wins •  When a great team meets a great market, something special happens

Business Model and Sales Model •  Business model –  Who is the buyer? (“Who is Bob?”) –  Possible pricing strategies –  Detailed understanding of compe4tors business models •  Sales Model –  Must be extremely eﬃcient –  Must be able to sell product online or on the phone –  Freemium model almost a must-‐have – market is now accustomed to trying products before buying –  Any product that does not have a low cost sales model is a non-‐starter

Momentum •  The days of the “Two guys and an idea” are gone –  A prototype is a MUST HAVE –  A beta customer is almost a MUST HAVE –  A paying customer is a “mixed blessing” •  Momentum is also important because it gives the entrepreneur leverage

We love entrepreneurs who do their homework! •  Find investors who understand your space •  Develop a detailed ﬁnancial model –  While we understand that it is a virtual certainty that your model is wrong, it’s a useful insight into how you think and what you want to spend on •  Find a connec4on to a VC –  Cold Calls probably won’t get you anywhere –  LinkedIn probably the most valuable tool – use it oqen and use it well

In closing…. •  It should ALWAYS be your goal to DOMINATE your market •  Your startup MUST be your obsession – if its not, don’t do it •  Don’t spend too much 4me thinking of exit strategies, instead just build a great company •  Don’t focus on making money for yourself, focus on crea4ng something you will always be proud of

Stay in touch pree4sh@cervinventures.com www.cervinventures.com @pnijhawan @cervinventures

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What vc's look for

by Preetish Nijhawan

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