When it comes to courting investors, especially venture capitalists, for your startup, the recipe is simple: stop worrying and start focusing.
Most investors have a singular goal -- to fund a startup that eventually becomes a large, independent, defensible company. Finding an Evernote, Airbnb, or Instagram provides the kind of return that makes or breaks a venture capital firm.
But how do VCs find a company that is going to become big? It's not an easy task, but there are a few clues investors look for in order to determine your chance at hitting the jackpot. Here are a few of the important ones:
- Previous exit: Nothing makes investors salivate more than having the chance to back a founder who has already had an exit. Previous success is the best predictor of future success.
- Growth/traction: Pinterest famously failed to convince investors to drop their money on it. But once it went viral, investors began fighting for a seat at the table. Investors look for "durable traction," says Josh Elman of Greylock Partners. Short-term bumps from press coverage don't cut it -- a product has to be sticky, and friends have to tell their friends about it organically.
- Revenue and a business plan: Despite what The New York Times says, investors love startups with revenue, especially if revenue is rising. It's even better if a startup can show it has a reasonable opportunity to make significant amounts of revenue from a big market.
- Data: Data is monetizable -- just ask Domo, Metamarkets, Cloudera and TellApart. It's the entire premise of the big data movement. Companies that show they can gather and analyze vast quantities of data have a clearer path to funding.
Having investor traction, intellectual property or a strong team with domain expertise also helps, but in the end, they're all clues that you have the ability to focus:
"In the really early stages of a company, it's hard for the team to focus on one thing and do it really, really well," says Elman. Trying to acquire users is a completely different task than generating revenue, and splitting your attention on both may result in your startup not doing either thing well. If you're successfully acquiring users at a rapid pace though, most investors won't doubt your ability to eventually monetize those users.
So how do you grab an investor's attention? Keep focused on something you can deliver in a big way, whether that's growth, revenue, or data.