A Crowded Space

What VCs look for in an early stage company

By this, I really just mean what I look for in entrepreneurs and companies at early stages.  But I wanted to organize my thoughts on this primarily for my own purposes.  It’s helpful to force yourself to write down your principles.

I look for:

·         Scrappy entrepreneurs – hustle. That’s the name of the game.  Building a cool technology / cool website is nothing these days.  I want to hear the crazy stories about how you stalked a potential customer until they would try your product, how you walked door-door w free samples, how you recruited engineers by asking everyone you know who the best engineer is and then hunted him down for the next 6 months until he joined your team.

·         Dramatic reduction in customer effort – lots of things are difficult.  I want to invest in companies that make things really freakin easy.  Read up on the customer effort study from HBS. 

·         Unique solution  – there are a lot of successful companies that are following in the wakes of Groupon.  But, I tend to stay away from those. I like entrepreneurs that experience a pain point and set out to solve it, rather than see a successful company and decide to follow. Maybe this is a bad criteria since tons of successful companies make it by copying, but I just haven’t been able to get behind these types of companies.

·         Ridiculously high NPS – Build companies that customers love.  If you’ve figured this out, the rest tends to fall in place.  Social media / word-of-mouth will dwarf every other channel of acquisition. The key is finding that company before they’ve become huge – it tends to happen fast if you’ve really nailed the NPS bit.  

·         Charming founders – I used to think this was superficial.  (smart and innovative should be enough?) But the reality is that VC investment decisions are more emotional than most people would guess.  The charming part is helpful.  But more important than that is the key job of a CEO is to hire great people.  You need to be at least a little charming to assemble a world-class team.  In the beginning, you’re just selling yourself and your vision.

·         Humility – I’m usually impressed when someone is candid about their lack of understanding of a business.  Eg, This could be a massive flop – I don’t know yet.  It indicates to me that we’ll be able to have intellectually honest discussions going forward.  Important.

·         Tiny focused launch – start small, start focused.  Start with a niche in a city, demographic, or vertical.  You don’t have much money, you can’t do it all.  Anytime I see an early stage startup that already has multiple products and lots of features it’s almost always a pass.

·         Big, articulate vision – I think one of the most noticeable differences between As and Bs is the ability to clearly articulate a big vision.  B’s can talk about features - A’s talk about root problems.  B’s talk about market size, A’s talk about why the world should be different.

·         Traction – “No one will invest in your startup without traction.  Period.” Courtesy of @chrisyeh.

·         Does it sound like a public company? – Read a bunch of public company descriptions.  Then compare with the vision for the startup company.