what do vcs want

Before even sitting down to pitch, most startup founders are doomed to fail.

The reason? They think VCs want to be pitched the next big idea. I don’t. I just want to be convinced that they are the right person with the next big idea.

Now of course ideas are important, particularly in complex African markets. Where else do the realities of prosperity and innovation, driven by consumer class spending, and a flood of technology exist alongside the equally real limitations of basic infrastructure such as power and electricity?

But market complexities are real life. They build agility and intuition in an entrepreneur and make investing in a person much more important.

So, here’s what actually catches my attention when we meet:

Grit and experience.

I invest in people because ideas, business models and competitive market dynamics change. Shifting consumer preferences and available technologies can drive products into obsolescence overnight. But the determined founder must find a way to capitalize on new industry realities or pivot and create new momentum.

Having experience means you are uniquely equipped to succeed in a particular market or vertical. Many founders have strong instincts, but instinct guided by contextual understanding is a tremendous advantage. Moreover, you’re likely to have existing relationships that will position you to gain traction quickly.

This is why I’ll invest in a founder from a village with relevant experience and his/her sights on a problem validated by years in an industry, over a freshly minted Ivy League MBA repatriate with a hard drive full of business plans.

Yes, grit (or call it, passion and perseverance), plus experience are huge for me. But don’t get me wrong, your business matters too. Big time.

Are you committed and experienced? Good. You’ve made it to the next round.

Next, here are the two key questions:

Do You Have a Business, or an Idea?

An attractive business can demonstrate the ability to (viably!) attract, retain and grow a customer base. Good ideas only theoretically do. Of course, I expect there will be revenue assumptions you’ll make. Light revenue or being pre-profit isn’t a deal breaker. But you need to walk me through the exercise of breaking down and validating your figures.

As we dive into your revenue plan and metrics, be careful about wild assumptions. If you’re building a business case on an assumed conversion rate for free to paying customers, or banking on converted traffic based on click-through metrics from social channels, this better be anchored in real life scenarios. I love optimists, but far reaching assumptions on make-or-break aspects of the business require leaps most are not willing to take.

P.S….please, please, please at least mention customer acquisition costs. If you don’t know how much it costs to acquire a customer, most will immediately think, a) you’ve never acquired one, or b) it’s prohibitively expensive.

How Big Is Your…Market?

Successful startups solve specific problems or satisfy pressing desires. Wildly successful ones do it with strong margins across huge populations. You can’t do this without pinpointing who you’re serving and what problems they face. Without certainty in these there is no way to accurately estimate a market’s size or understand its tendency to spend.

Moreover, without target market clarity, you can’t identify the products, people and technologies that you’re up against. And if you cannot answer what will compel customers to choose you over the competition, they certainly can’t either.

In certain cases, products that serve a niche audience exceptionally well may be attractive. If the product is highly defensible and some aspect of the business creates a hurdle for competition to overcome, I may be interested.

So there it is.

Passion, experience, a viable business and an attractive market – the simplest ways to this girl’s heart money.

Thanks for reading! Look out for the next post in the funding advice series next Thursday. Last week’s post was about the wisdom (or not) of joining incubators. And follow us on Twitter.

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