Investors use a combination of qualitative (e.g. founding team, competition) and quantitative factors (e.g. market size, traction, ROI) to evaluate early-stage startups for their investment readiness i.e. whether to invest in it?
Here are some of the key criteria and considerations that investors review in a startup:
1. Founding Team
The most important slide, especially at Pre-Seed & Seed rounds.
Founding team, list of advisors, past startups/exits, industry knowledge, skill sets, attitude, passion?
Podcast: Founder-Market Fit, The Why and How?
2. Traction, Unit Economics & Product/Market Fit Indicators
Growing MRR/ARR, LTV:CAC ratio, NPS/reviews?
3. Market Size & Growth Trends
If you’re raising from VCs, it’s crucial that your SOM is large enough for min. 10X ROI.
4. Proposition
Do your solution (product/service), and its business model make sense?
5. Competition Landscape & Defensibility
Is the Unique Value Proposition defensible in the long run?
Are the numbers with reasonable assumptions and well-justified?
7. Deal Proposal
How much are you raising, and at what valuation, terms, and any lead/commitments?
8. Exit Strategy
Is there a potential for a strong (> 10X) exit?
9. Alignment of Thesis & Purpose
Matches investment thesis (funding round+ask, valuation), and purpose (impactful/sustainable)?
Summary
Overall, investors use a comprehensive approach to evaluate early-stage startups for their investment readiness.
Startups that can effectively showcase their strong team, market potential, scalability, and high growth trajectory are more likely to attract investment.
It's also important for founders to present a compelling and well-structured pitch that addresses these key criteria.