What Investors look for, during Pre-seed or Seed rounds?

Quite often the founders ask me, "what do the investors really look for while doing the pre-seed or seed funding?"


Here are 3 valuable inputs by Gale Wilkinson, co-founder of Vitalize VC:



1. Assessing the team's ability to execute and excel.


Investors want to see results (early revenues, data) along with reason/s to believe on why this product/service is a painkiller, and/or concrete insights the founder has learned through hustle and customer research.


A strong founding team (founder-market fit), and their vision is absolutely important at these stages. Investors also look for founders' grit, passion, coachability, and problem-solving skills.


Often for the revenue generating startups, Investors would also like to see early signs of product market fit (i.e. traction, user growth and engagement, customer acquisition costs vs. life time value, as well as retention)



2. Understanding their business model's potential.


The market must be large enough (e.g. if every customer bought, would the revenues be $1+ Bn), along with consistent growth rates.


The startup's road map must incorporate multiple offerings or benefits, business models, and/or target markets to scale big, long-term.



3. Betting on those startups + founders with the "it" factor.

  • What is the startup's and/or founder's special (secret) sauce?

  • Why is this idea/opportunity more believable, and better than the rest?

Investors should strongly resonate with the founder's vision and have the conviction that this deal truly has what it takes to succeed!



Valerie J., the former banker of Goldman Sachs, and advisor to 50 global Hedge & Techno Funds iterates the below 5 pointers on how she picks companies at the pre-seed/seed stage:

  1. The idea, product, technology must be audacious, and boldly supported by a (realistic) vision.

  2. It must solve a big problem. One that also creates new opportunities, more cash, more jobs, etc.

  3. Some metrics, traction, and a timeline.

  4. A demo, prototype is a must.

  5. Team: A solo founder is okay! I rather have 1 good founder supported by a strong team, than 2/more founders fighting with each other (this really happens quite often; so beware!)


 

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