What do investors look for when deciding whether to fund an entrepreneur? It depends on whom you’re asking, and how far along your startup is.
A seed-funding specialist isn’t necessarily impressed by the same traits as firms that focus on later rounds. At Signal Peak Ventures, we specialize in Series A rounds, and the success indicators we look for are fairly consistent. When vetting incumbent startups, we examine three primary areas: people, product and potential market.
Everything else comes after.
On that note, ask yourself: "Does my startup have these areas locked up?"
Whether you’re a proven entrepreneur or a willing-to-learn first-timer, the kind of foundation you bring to your company is what we look at. Optimism and passion are trademarks of successful leaders. You can’t be risk-averse, and you’ll need a lot of physical and mental stamina to keep going when conditions get rough, which they invariably will. But if you have the right characteristics, you’ll attract the second must-have in the people area: talent.
Winning startups must be able to grow from day one by attracting talented employees, who attract other talented employees and so on. Bringing in great people is the way you grow a great company. Success as a tech startup depends on collaboration, and that requires building a team who will follow you into the trenches and bet that the risks will pay off.
Your past performance is another good indicator of whether we’ll be able to succeed together. Past success isn’t a hard necessity -- but we want to back someone who’s blazed a trail or made a good exit after chasing his or her dreams at full speed. If your background has serial entrepreneurial wins or standout experiences at quality companies, that’s an encouraging indicator.
Finally, as in most successful relationships, we need to like you. Our model may include working with you for ten years. Are you coachable? Cooperative? Friendly? We’re probably still going to be having dinner together five years down the line, and we want someone with whom we’re excited to commit.
Related: 3 Ways to Bring On a Silent Partner
It’s easy to invent a product that leverages new technology. It’s hard to make money doing it.
A successful entrepreneur, someone whom we want to fund, needs more than a great idea or a shiny new app. He or she needs to be building a business by fulfilling a need or solving a problem that the market didn’t even know it had.
We’re looking for a sustainable, scalable, profitable concern that has people thinking, “Why didn’t someone do that before?” Those traits indicate a disruptive business model -- and disruption often leads to growth and successful exits.
What does the market need and, more importantly, how can your startup (and preferably your startup alone) address the need and leap to the front of the pack? The types of companies we look for don’t stay in the flock, grazing in oversaturated markets. They hone in on sectors ripe for innovation, and then scramble to the top.
Such startups also ensure that the cost of acquiring customers stays well below the profit each customer brings to the company. These traits indicate the potential for long-term success and growth, and those are the kinds of startups we want to partner with.
How big can you go?
We tend to look for the sure-footed, scalable, steady startups that we define as "Rocky Mountain Bighorns." Each Bighorn should also have the potential to be a Unicorn. We don’t bet on unicorns, but want to see startups that embrace that uncertainty to think better, try harder and introduce exceptional products to the world.
When you win, we win. So, convince us that you have what it takes, and we’ll be excited to partner with you.