6 Key Factors VCs Look for in Funding Candidates

Written by Diane Yoo

Contrary to popular belief, there is no single factor that can determine whether an entrepreneur or startup receives funding; there are several.

Each and every credible investor or venture capitalist (VC) your team talks with will have a pre-established list of criteria they use to evaluate you, your team, and/or your venture.

After all, the ultimate goal of any VC or investor is to see a profitable ROI.

Over the better part of the past two decades, I have mentored and invested in hundreds of entrepreneurs and startups. Of all those investments made, no two have been exactly alike.

In this article, I want to help more entrepreneurs and small business owners understand which qualities VCs look for in the teams and companies they invest in.

1. A proven track record of success

Before any VC agrees to invest in you or your business, they will need to know that you have the potential to maximize their ROI.

This means not only having a leadership team that is experienced in the realm of entrepreneurship and VC funding, but also one that possesses soft skills — like empathy, humility, and compassion — that any leader should have.

Without a successful track record, you are far less likely to receive funding from a VC. Although with that said, it’s almost always possible that an entrepreneur or team without a successful track record could be able to receive investments in other, non-monetary forms.

2. Remaining open to mentorship and coaching

The Chinese philosopher Confucius is often credited with saying, “true wisdom is knowing what you don’t know.” This ancient adage could not hold more true than it does within the realm of entrepreneurship.

No VC has ever been excited about investing in an entrepreneur who claimed to know everything about all aspects of their business, target market, industry, or partners, because such a claim tells us that the entrepreneur in question will not be open-minded to change.

Change is a constant force that impacts all of us throughout our lives. Instead of trying to know everything, entrepreneurs are far more likely to receive funding if they show their ability and willingness to learn new things and pivot their business’s strategy accordingly.

3. A strong and capable leadership team

Any business (but especially a newly-established startup) is only as strong as the individuals who comprise its leadership team.

Capable leaders are ones who not only have the expertise to fit their role within an organization, but ones who are able to foster strong feelings of mutual trust, respect, and loyalty amongst their colleagues and employees while remaining focused on the company’s bottom line.

The world of entrepreneurship is as complex as it is competitive, so your venture’s leadership team must hold the necessary skills to navigate that complexity if its goal is to receive investments from VCs.

4. Resiliency in the face of hardship

No entrepreneur will become successful if they’re in it purely for the money.

Between the point that an investment is made into a venture and that venture’s financial exit, there are bound to be multiple challenges and hurdles that arise which can push back goals, upend teams, or otherwise threaten the success and longevity of a company.

As an entrepreneur and organizational leader, it is your duty to remain resilient in the face of those challenges and formulate strategies to overcome them.

Without showcasing the ability to do so, no VC will invest in you or your business.

5. Products or services that add value to end-users

If you, your team, and your venture are able to exemplify prior successes, open-mindedness, resiliency, and other strong leadership qualities, the last thing you need to show to potential investors is the value of your products or services to your target market.

Without effectively demonstrating the value your venture offers to consumers or clients as end-users — whether as a B2B or B2C business — there is little chance of receiving an investment.

This is because it could lead VCs to believe that you are founding a venture upon an unoriginal product or concept into a highly-saturated beachhead market. 

6. Timing

Lastly — though certainly not least — is the aspect of timing, which is perhaps the most important quality to consider when seeking investments for your business.

If you are founding your startup to jump aboard a popular trend, chances are that you are already arriving at the scene too late.

Arriving too early, however, could be just as damaging to your chances of obtaining VC funding, as it’s likely that either your product or service has not been extensively tested with consumers or that those consumers are not yet ready to adopt it.

Should you find yourself in a spot where consumer demand for your business’s product or service outpaces its supply, then your chances of landing an investment are much higher.

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Diane is an entrepreneur and investor with over 15 years of experience in launching and founding Angel Funds, Investment Networks, and Venture Capital. As Founding Partner, she secured a Venture Capital fund partnership with Texas Medical Center, the world’s largest medical center.