What exactly do investors look for in startups and founders? When you’re looking to fundraise, the answer to this question can sometimes feel like a mystery. Unless you’ve successfully sought out investors before, you won’t always know how best to connect with them, prepare for meetings, and emphasize exactly the information they most want.
Over the past several months, dozens of investors have shared what they look for when making investment decisions with the Product Hunt LIVE Chat community. We scoured through those conversations to pull out some of the best advice from 13 different investors. Read on to learn exactly what blows them away—and what ultimately makes them want to invest in you and your startup.
What is one thing that stands out to you in an early stage startup? –
The one thing that always stands out the most in an early stage startup is the team. We invest quite early in a company’s life; it will usually take 6–10 years for the company to reach giant success. Given that, many things will go wrong and the one mitigating factor for setbacks is a great team. We spend the most amount of time thinking about the founders and the early team before investing. — David Pakman, Partner at Venrock
Does experience starting a company/industry knowledge matter as much when we talk about founders who are in their 20s? — Tamar Weiss
I’ve actually found that industry knowledge can sometimes serve as an impediment to a founder. The best startup ideas are typically contrarian — and in my experience, people who have spent years working in an industry might have the hardest time identifying opportunities for disruptive change. Amazon wasn’t founded by someone in the book industry. AirBnB wasn’t founded by someone with hotel/hospitality experience. Travis [Kalanick, Founder & CEO of Uber] didn’t work for a taxi or limo company. — Josh Kopelman, Partner at First Round Capital
Seeing so many pitches and companies, how do you keep yourself from becoming cynical when considering new ideas and fresh faced founders? — Jeremy Gordon
This is the million dollar question in venture. As a startup person, I think you are natively somewhat of a blind optimist. You have to be or you wouldn’t join a crazy startup with a 1-in-1000 chance of going anywhere. However, in venture most companies you see aren’t going to be successful, so you have to rationalize that optimism with the realism of how hard startups are.
I think it’s important to always lean towards optimism in order to find the outliers that make a big impact. I personally always try to think back to what Twitter/Facebook/Uber/Airbnb’s first pitches sounded like. They all sounded trivial and silly back then and it reminds you to keep hunting for the unobvious ones. — Ryan Sarver, Partner at Redpoint Ventures
What channels (besides introductions) do you use to source new investment opportunities? — Ali Afridi
Warm, qualified introductions are the single most meaningful signal a VC can get, so I would encourage all entrepreneurs to find the closest, warmest intro to the VCs who are interested and investing in spaces like yours. Beyond that, I find social media (where people’s points of view, reputation, and activity are quickly validated) to be a great way to “meet” new entrepreneurs. I still love to read something written by the person, like a blog or Medium post, so I can understand the way this person thinks. — David Pakman, Partner at Venrock
What are 3 things that have most surprised you about great founders who build great companies? — Justin Kwong
1) How little it matters where founders went to college
2) How critical it is to solve your own problem
3) What good people the most successful founders tend to be — Jessica Livingston, Cofounder of Y Combinator
What is the single most important character trait that you focus on when you’re considering backing an entrepreneur’s venture? — Doc Sheldon
Her obsession with the product she is creating. Has she been put on this planet to work on this product? If yes, then awesome. — Brad Feld, Managing Director at Foundry Group
What do your believe are the keys to success in launching and owning your own business? — Leah Faul
To be working on something that you can imagine doing for at least 10 years and to never compromise on the quality of people you work with. If something doesn’t feel right about a person, or if they’re not getting the job done, get rid of them. Nothing dooms new ventures faster than bad teams. — Hunter Walk, Partner at Homebrew
How do you [assess] solo/non-technical founders? — Ali Halabi
Well, if you’re solo you better be damn good. And we don’t just look for “technical” founders, we look for folks who can:
1) Build product (code or visual design)
2) Market & sell the product
3) Manage & grow the team
Mostly, we look for founders who fit one or more of the above categories, and what is there vs. missing when startups ask us to invest. We also look a lot at the potential for growth, and strategies for customer acquisition.
– Dave McClure, Founder of 500 Startups
What are the 20% of techniques, mindsets, skills, etc. new/first-time entrepreneurs have that result in 80% (or a large part) of their success? — Troy Shu
The big thing is to focus all of your energy on is product/market fit. Get to a product that people are adopting very quickly, or that you can reliably sell repeatedly. To some extent, everything else — culture, management, etc. — is secondary. Don’t take your eyes off the prize. — Ben Horowitz, Co-founder of Andreessen Horowitz
What should a startup have as a minimum to get an absolute “yes” from you as an investor? — Natalya Matyushenko
Boiled down, I want to be thinking about the potential of the investment after the meeting; as I socialize the idea with friends, when I’m on a walk, in the shower…the idea has to catch. Then I want to understand what the founders have done in their past that informs this next move. There has to be some connection.
And I look for drive. What drives someone? Is it fear? Is it mania? It has to be something deep, and that takes time to figure out. More clinically, I like big or new markets. I am a market-driven investor at the end of the day. The people have to fit into the market, or make it on their own. — Semil Shah, Investor at Haystack Fund
How do you gauge the qualities of a founder or founders? What is the best way to approach a specific investor if their qualities are in line with yours? — Brady Richard
I’m looking for founders with grit; people who don’t give up, people with the execution ability in whatever space they are disrupting, people I’d be willing to work for, people who are flexible, leaders, good communicators, people who know their company inside out. I always ask my team, ‘If we got a call at 1 am from this founder needing something, are you going to be happy to pick up the phone and jump in?’ The way we assess this in diligence is different every time, but it comes down to asking a ton of questions (not just about the business). But we don’t just trust our judgement; we try to find people who know them or have worked with them and get third party help.
Driven people with great ideas find a way to investors. I’m approached all the time at events or even in elevators. I get cold calls and cold emails and I or someone on my team takes almost all of them. The one thing I would suggest is, don’t be disruptive; be polite, get to the point and expect [one of] two answers YES or NO. If it’s no, find out why and fix it then reengage. Everyone you want to work with ever is busy. — Ashton Kutcher, Actor & Investor at Sound Ventures
What’s been the DNA held in common by the hugely successful orgs of which you’ve been a part? In other words, why do you think Facebook, LinkedIn, and Twitter were so successful? — Scott Hurff
What impressed me about all of the companies is the founders; in those early days pretty much all of the employees shared this optimistic belief that we could make a big difference for the world. Every decision came back to whether it would help make that more possible, and avoided any short-term tradeoffs. Also all of the companies had a very healthy mix of understanding of data along with this vision so decisions were not just based on he said/she said opinions. — Josh Elman, Partner at Greylock
What are the most surprising things you’ve learned from founders you’ve advised that you think would benefit most early stage founders, companies, and products? — Sydney Liu
The best founders are extremely thoughtful and have an eye for quality. I don’t know if there’s any generic advice here that would be helpful. Startup knowledge is a moving target. Rather, I suggest you associate with and help the best founders you know. On a long enough timescale, it pays off. — Naval Ravikant, CEO and co-founder of AngelList