5 things VCs look for in startups raising series A funding

Photo credit: WOCinTech

At Loop, we’re all about connecting thought leaders and entrepreneurs around the world to catalyze growth. We’ve spent the last three months building a global network of coworking spaces, entrepreneurs, and talent to foster a community of collaboration.

In doing that, we’ve learned a lot, and it’s our mission to share this knowledge. Recently, I sat down with Peter Huynh, Partner at Qualgro (a VC firm based in Singapore) to learn about how VCs evaluate and judge early stage startups. These are the 5 key things that his VC firm looks for when investing in startups looking for Series A funding.

The team is the most important aspect

VCs are primarily looking for a really deep connection between the team and the problem that they’re trying to solve. These teams will typically have deeper insights into the problem space and potential ways to solve them. Also, there will always be difficult times in the startup journey, so if there’s no deep tie between the founders and the problem, it’s harder for them to persevere. Some of the other key attributes considered are:

• How long has team been working together for?
• What are the team dynamics, skill sets, and experience?
• How good are they from an execution perspective?
• What metrics are they measuring in terms of core product?
• What are they looking at to decide what goes into the next build?
• How quickly can the team build test and learn?

Often times, this means that a team with a strong engineering capability will be looked at in a better light. They can get so much more done over shorter period of time, can afford to experiment more and often better equipped to solve problems on the run.

Market space is very important

A lot of startups will say that they’re creating a new space and that there are no direct competitors; however, most of the time, this simply isn’t true.

Just because someone else is doing it, it’s not necessarily a bad thing.

It’s important to keep in mind though, that just because someone else is doing it, it’s not necessarily a bad thing, as it all comes down to execution. More important questions lie in what life cycle stage the market is currently in. Is it nascent? Is it consolidating? Is is post-consolidation? Understanding this gives investor a better gauge on how expensive it will be to compete. It gives the investors a much better picture regarding the economics of the space, and potentially how it will play out over time.

In Series A, investors want to get a good view of the competitive landscape. Who are the direct competitors and what are the substitute products and services that can deliver similar value? Being able to address these aspects in a more realistic manner makes investors much more confident when allocating funds.

Deep dive into the product aspects

When your startup has gotten to this stage of the Series A process, it’s all about the product that you and your team have dedicated your time to build. VCs and investors will use the product and break it down in terms of the entire user experience, really getting into all aspects of it.

Great VCs really love playing with product and understand the team’s rationale for product design decisions.

Velocity of traction

This point is simple enough: how many people can you get to actually like and use your product?

Investors are essentially looking at proof of product market fit or where they can see the business scaling. Some of the key questions involved in assessing this are:

Terms of the investment

Conclusion