There’s no real shortage of VC funds out there – investments in Asia doubled for the first half of 2016 – but how do you convince an investor to take a bet on you?
We spoke with Shaun Di Gregorio of Frontier Digital Ventures, Yanai Oron of Vertex Ventures, and Eden Shochat of Aleph VC to get a perspective on the traits VCs look for before deciding to invest in a company. Here are six factors they outlined:
1. Focus on solving problems
For Eden, the problem a startup is trying to solve is the “most important part of an investment pitch.” If there’s a company addressing a grossly inefficient market, with obvious consumer distress, it’s likely that his firm will take a closer look.
Yanai has a similar view. He explains his fund is willing to splash the cash for ideas that aren’t even displaying much traction as long as the partners believe in the startup’s team and the problem they’re trying to solve.
2. Build a great team
Shaun, Yanai, and Eden all hone in on the premise that investors need to believe in and trust the founding team before they make a firm commitment to extend a funding offer.
“Partnering with the entrepreneur is one of the most important elements of what we do,” says Shaun.
Yanai believes it’s critical to have two or more co-founders. Not only will this augment existing skillsets, it’ll also ensure there’s a steadier ship for the “rollercoaster ride ahead.”
Assemble a well-rounded team and focus on your startup, advises Eden. Funding is secondary.
3. Understand the market
There’s immense value in startups that have demonstrable knowledge of the dynamics of their market, affirms Yanai. This could either be through previous experience in the same industry or via painstaking research and a well thought-out business plan.
Similarly, for Shaun, it’s important to see entrepreneurs make progress on their idea before committing to invest.
“Be clear on your strategy and then focus,” he explains.
All three investors were hesitant to invest in startups that might be ahead of their time.
“The risk of being too early is sometimes bigger than the risk of being too late,” states Eden.
“We are wary of companies trying to create a market because being too early to get to market is a killer for startups,” affirms Yanai.
The common denominator here is for startups to understand the competitive landscape. Will market dynamics and consumer behavior support your idea? A service that’s beginning to take off in the US might not work in Southeast Asia simply because there’s no compelling reason for consumers to change their habits yet.
5. Display product-market fit
Fundraising is “far easier” if founders have relentlessly tried to validate the idea with potential consumers, explains Yanai. It helps fine-tune the product and convinces others to come on board.
Shaun agrees, saying it’s integral for his firm to “see a really good fit” in the market, entrepreneur, and idea.
Entrepreneurs who take the time to validate their ideas will not only understand the current needs of their consumer, but possibly future ones as well. That’ll help them stay one step ahead of the competition.
6. Talk to several investors
Eden advises founders to “create as competitive of a funding situation as you can.”
Sometimes for VCs, a fear of missing out can be a compelling reason to invest in a firm. That’s further augmented by an entrepreneurial attitude which says ‘I’m going to go do this with or without you’.
It’s not ideal to place all your eggs in one basket and pitch your idea repeatedly to the same investor. At the end of the day, different ideas resonate with different people. Go out and talk to as many people as you can.