What venture capitalist are looking for goes well beyond the financial prospects of a company.
getty
Few things in life are as consistently humbling as being a VC.
Sure, VCs stand to gain significantly when everything falls into place. And yes, being the one with the capital is a privilege when it comes to conversations about funding, a privilege most entrepreneurs are working hard to one day obtain.
Look beyond the surface and you’ll find a much more nuanced reality.
Seventy-five percent of startups fail to deliver positive returns to VCs, and loss ratios hover around 20-40%. As a result, succeeding as a VC requires discernment and a risk appetite that most people lack.
“Being a VC is a remarkably rewarding yet humbling job,” Chip Hazard, General Partner at Flybridge, known for being an early investor in MongoDB among many others, explained in our recent discussion.
“For the right person though, it can be the best job in the world. If we do our job as advisors and facilitators right, we can bend the trajectory of a company towards levels of success neither us or the company could reach on our own,” Chip continued.
Founders and entrepreneurs who are hoping to raise money need to have more than just a killer idea, they need to have a firm grasp on what VCs are looking for.
After a year spent talking to dozens of VCs on what drives their decision-making today, we’ve uncovered four founder qualities that are particularly high on their radar: market understanding, adaptability, leadership, and a clear path to profitability.
MORE FOR YOU
From leadership qualities to market potential, VCs are now focusing on long-term strategies and the ability to adapt to ever-changing market conditions. Below, we break down what leading VCs are looking for, drawing insights from seasoned investors in the field.
A Deep Understanding of the Problem, Not Just the Solution
The golden years of raising money just on an idea are well and duly over.
Today’s VCs are looking for founders that can go beyond a polished deck, particularly when it comes to understanding their product and the market they are entering.
Adam Sharkawy, co-founder of Material Impact that is built on finding early signs of success in the field of material science, emphasizes the importance of immersing yourself in the problem, not just the solution.
“What we’re looking for are founders who are deeply immersed in the space in which they are working. Building an impactful solution is very difficult if you don’t truly understand the problem and all its stakeholders incentives, which is who we index heavily on founders who haven’t fallen into the ‘build and they will come’ trap that lead’s many good founders astray,” Adam explained.
Chip and the Flybridge team have built success on a similar approach that emphasizes a cohesive understanding of both sides of the market.
“It’s more than understanding a market deeply and identifying a pain point. Founders who are able to position their solution within the existing ecosystem is something we’re paying particularly close attention to,” Chip added.
A solid grasp of the market is a valuable signal precisely because it comes at a cost.
Founders who exhibit this have either gained their knowledge through years of industry experience or, as outsiders, have invested the time and effort to derive sharp market insights. Either way, it shows their commitment not only to the idea but to its successful execution.
Leadership Is Just as Important as Innovation
Great ideas are everywhere, but solid execution is rare.
Transforming an idea into a business requires committed and capable leadership, and VCs are particularly well adapted to scouting it out.
Jennifer Addie, COO at VentureScope which specializes in applied innovation at scale and accelerating small business success, emphasizes this point.
“We’re not just investing in a product; we’re investing in the people behind it. A founder’s ability to build and lead a team is often what determines the trajectory of a startup. You can have the best tech, but if you can’t inspire, align, and manage talent, it’s only a matter of time before things unravel,” Jennifer explained in our recent chat.
Adam Sharkawy has similar advice to share.
“I think of startup leadership as being the captain of a sailboat. They need to have the vision to navigate a seascape that they themselves are redefining with each wave. The captain needs to see beyond the horizon, many waves out, to intuit the non-obvious in order to navigate the company to success, and then they need to have the passion to influence the rest of the crew around them towards that destination,” Adam added.
VCs know better than anyone that a great captain alone doesn’t a successful startup make. Instead, success depends on a strong team, and VCs are looking for founders who can inspire, lead, and build them.
This point is echoed by Chip Hazard from Flybridge, who notes that leadership qualities like grit, self-awareness, and the ability to unite people are essential traits for founders.
“Venture capitalists want to see how founders manage teams, communicate effectively, and how they respond should a setback arise,” Chip noted as our discussion veered into how strong leadership manifests itself as a driver of success.
Getting the Product Market Fit Right is Everything
Even a superstar team with brilliant leadership will find themselves powerless against a poor product-market fit.
Today’s VCs are laser-focused on whether the startup is solving a real problem and whether there’s enough client pull to justify investing in scaling it.
Startups that misjudge market timing with their product or fail to develop one that gets to organic pull quickly will have little luck with investors, no matter how visionary the product might be.
Kevin Leneway from Pioneer Square Labs emphasizes the importance of timing and adaptability when evaluating startups. “As AI costs drop and capabilities grow, rapid iteration is becoming essential. VCs are looking for founders who can quickly find product-market fit by embracing AI’s potential and refining solutions in real time. It’s less about having the perfect model and more about speed and agility in adapting to a shifting landscape,” Kevin explained during our interview.
Remember, VCs aren’t just backing an idea. Instead, they are looking for founders who can deliver a product that the market wants at a price point and volume mix that will make the investment worth it.
This is why founder’s are increasingly under pressure to articulate their path to revenue, even if production might be years ahead.
Those Who Succeed in Summoning Lightning
Finally, founders need to be cognizant of the role luck plays in this all.
“I’m a strong believer that luck plays an outsized role in determining who finds success and who doesn’t, but it isn’t a lightning bolt that strikes from the clear sky. Instead, luck is a result of those who work hard, have the confidence to take calculated risks, keep an open mind to new ideas and unexpected connections, and consistently persevere in good and bad times,” Chip Hazard mused as we discussed how founders have more control over their fortunes.
There are few better analogies for success for an entrepreneur than summoning lightning at will.
Building a successful startup is as much about preparation and perseverance as it is about seizing the right moment.
Founders who demonstrate a deep understanding of their market, strong leadership, adaptability, and a clear product-market fit are those most likely to attract the attention of VCs. But as Chip Hazard reminds us, luck—though elusive—isn’t entirely out of your control.
It favors those who are prepared, open to change, and relentless in their pursuit of success.