The 13 Must-Haves for Raising from VCs

Raising from a16z taught me a lot about what VCs actually look for.

And successfully raising is harder than ever — interest rates are up, VCs are trying to extend the life of their current funds, and deals are down as a result.

Most advice I see about how to fundraise is contradictory or incomplete. The list below tries to be neither of these things.

The 13 Must-Haves for Raising from VCs

The Right Investors

Not all VCs are looking to invest in every sector. In fact many are thesis-driven, meaning they invest in startups that align to ideas about the future that they already have, or in sectors that are particularly interesting to them.

You can tell what most VCs are interested in at any given time with a little research. The reason VCs post on twitter, write newsletters, and appear of podcasts is to advertise the areas they're interested in at any given time to founders who may be paying attention.

This is good news for founders — you can self select into reaching out to investors who are more likely to already believe in what you're building.

Your job isn't to make them believe in the problem behind your idea, it's to find the ones who already do.

A Big Vision

VCs know that 90% of startups fail. Each investment they make is a risky bet, with a small number returning the value of their fund multiple times over.

Founders should focus on how big the opportunity is rather than how likely they are to be successful. This gives VCs confidence that the founder understands how risky (but exciting) their startup is.

A Growing Market

A VCs job is to pick which markets will grow faster than others.

Right now, many VCs believe the market for various applications of AI APIs is likely to grow incredibly quickly over the next few years, which is why you see them talking about it on twitter and investing in startups that make use of AI models like GPT-3 and stable diffusion.

Founders should make it clear that their market will continue to grow quickly — and ideally accelerate!

A Unique Insight

VCs want to make asymmetric bets — they want to back founders who zig when others are zagging.

Founders should communicate that they understand something that's not commonly understood.

The best way to uncover an insight is by talking to potential users and asking them about their current pain points. Then, present these findings to VCs when you're pitching.

Clear Communication

VCs see a ton of pitches — probably more than you'd think.

The best way to stand out quickly is to communicate clearly and concisely. Founders should practice how they describe their startup over and over again.

One trick I've used is the hemingway editor. It gives you actionable feedback on how to make your writing more clear, which can translate to how you talk about it in conversation.

Early Traction

VCs want to see that the startups they invest in are solving a real problem.

If you're very early, you can show that via testimonials or LOIs, but eventually you'll need to demonstrate it via usage and revenue.

Sean Ellis's product market fit survey can help here as well. If over 40% of your users say they'd be very disappointed if your product no longer existed, you're likely on the cusp of PMF.

Regardless, founders should build something people actually want.

A Moat

What makes your startup unique and defensible?

It's a negative signal if a user can get the same product or service elsewhere. Ideally, you're able to leverage network effects and the user experience improves with each new incremental user.

If you're in the early stages, you should still be able to talk believably about why a moat will grow over time if one doesn't exist yet.

The Right Timing

VCs use broad trends to judge whether users are ready for your product, and being early is just as bad as being late — vine was early but TikTok is a $100 billion product.

Founders should make sure they're going after trends that the market is ready for and current technology can support.

A Good Reputation

Especially in a bear market, VCs will absolutely always do blind reference checks on you before they offer to invest.

Common questions that get asked in these calls are pretty broad — they're looking to probe for strengths and weaknesses that they may not have caught themselves.

A positive reference will go a long way and, critically signal that a founder will be able to hire and retain capable team members from their own network (which will make hiring much easier overall).

Founders should be sure they have good relationships with past coworkers and partners.

Relevant Experience

Founder market fit may be as important as product market fit. A founder's experience in the market means they'll be able to move faster, and speed is the number one advantage that startups have.

Founders should solve problems that they understand well. If they don't have experience in a market, they should spend considerable time talking to customers before diving in and as they grow.

A Scalable Growth Channel

Having a great product is one thing, being able to find and attract people to use it is another.

It's true that early on you should do things that don't scale, but your startup won't survive without a scalable distribution strategy once you start down the venture path — you simply won't grow fast enough to be able to raise more capital.

Passion for the Problem

VCs know that startups are really, really hard. They've seen founders burn out.

Founders should demonstrate that they care deeply about the problem they're solving.

Confidence

Lastly, remember you're the one letting them in on something that may end up being huge!

I notice that many founders feel like VCs have the power, but if you've got all or most of the above things going for your startup, the opposite is actually true.

💡 How I Can Help

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