Where Venture Capitalists invest…

May 22, 2014 Mac Lackey

A common misconception in the entrepreneurial community is that VCs don’t actually invest, or that the formula they use to pick their investments can’t be decoded. Venture investors (true VC funds, angel investor groups, HNWIs, etc.) are actually quite predictable.

When I did the rounds with my various start-ups or now when I look at companies to invest in (whether for BlackHawk or personally), I look for the same 5 things generally:

1. A large “total addressable market” or TAM (can be a growing market, an under served market, etc… but it needs to be a BIG one).

2. An experienced team. This one is often tough for start-ups, but the fact is we all look for experienced teams. Have you built a company before? Do you have industry experience? Does your team have a well rounded base of experience? If you don’t have it, build a VERY strong advisory board that does.

3. Business model. Make sure your plan is differentiated. Create barriers of entry via a proprietary model, process, or tool. A patent or trademark may help. What makes your idea unique? Does it scale?

4. Market trend. Is your idea in a hot space? This one isn’t a requirement, but it sure helps if you are setting up camp in an area where the market is stampeding towards you. We all like momentum, so sell what people want to buy.

5. This is the absolute trump card to the other four and the most important for me (and almost every other investor type). What is your “unfair advantage”? Tell me why you will win. It should be something specific that gives you an edge over the market. For example, your brother in law owns a company that will exclusively supply the critical parts to you and no one else. You secured an exclusive license to a technology that makes your product run twice as fast as the competition. You locked-down the distribution arrangements with a guaranteed sell-through minimum, etc. Tell me why you will win!

If you create a focused and concise presentation outlining these 5 items in a compelling way, people will care. They will listen, and, importantly, some will actually invest.

 


 

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