What VC Investors Want to Know About Your Startup
For entrepreneurs embarking on early seed rounds, conversations with venture capitalists (VCs) can feel both thrilling and daunting. VCs aren’t just handing out checks—they’re weighing risks, scrutinizing opportunities, and looking for startups poised to deliver exponential returns. Though VCs may ask questions specific to their firm, investment style, portfolio, or any number of influencing factors, there are commonalities across what they want to see.
In this article, we’ll demystify what VCs want to know about your startup and how to craft compelling narratives from your data to leave them impressed.
VCs invest in startups because they see the potential for substantial returns, often aiming for a 10x or even 100x return on their investment. To make this case, you need to answer these overarching questions:
These answers rely heavily on a robust market analysis, clear communication, and well-grounded insights.
The further along the investor process you go, the more specific and nuanced the questions may become. Early in the process is a great time to go ahead and outline some baseline strengths about your business project. Addressing the following topics is a great starting point:
Investors often say they’d rather back an A+ team with a B+ idea than the reverse. Showcase your team’s expertise and track record. If you have gaps, demonstrate a plan to fill them.
Example: “Our founding team combines 20+ years in SaaS development and experience scaling a startup to a successful exit. To strengthen our marketing efforts, we’re actively recruiting a CMO with expertise in digital growth strategies.”
Your product needs to address a tangible, pressing problem. Articulate the pain point, and show how your solution is not just better but transformative.
Example: “Managing freelance contracts is time-consuming and error-prone. Our platform automates contract generation, saving users an average of 5 hours per week.”
VCs look for startups with defensible advantages—whether it’s proprietary technology, unique partnerships, or a first-mover advantage.
Example: “Our machine learning algorithm for fraud detection is patented and processes transactions 10x faster than current solutions.”
Investors want assurance that your business can grow efficiently. Highlight how you’ll scale operations, expand your customer base, and maintain profitability.
Example: “With our subscription-based model, we anticipate a customer acquisition cost of $500 and a lifetime value of $5,000, yielding a 10x return per customer.”
And accurate market size provides investors with a starting point for revenue, profit, and potential earnings.
Example: “The biotech industry is growing rapidly while leaving current opportunity to still break into the field. An encouraging figure is when assessing existing companies in the 5 states we can sell to, we have a service obtainable market of over $70 million.”
Of all the above questions, figuring out market sizing is the trickiest part for most investors. Many people default to either crafting their best educated guess or pay a large sum for a professional to do it. Whereas the other questions a VC may ask in early seed stages are easier to answer, market sizing involves collecting large and sometimes obscure data sets, understanding how to interpret them, and then creating analytical and actionable insights.
Market sizing serves as the foundation for your pitch. VCs want to know how much revenue your startup can capture. Here’s a breakdown:
TAM (Total Addressable Market): The total market demand for your product or service, assuming no competition and full market penetration.
Example: If you’re launching a SaaS product for small businesses, your TAM might be the total annual revenue of all small business software purchases worldwide.
SAM (Serviceable Available Market): The portion of TAM that your startup can realistically target, given geography, product capabilities, or other constraints.
Example: Narrowing your TAM to software spend by small businesses in the United States might yield your SAM.
SOM (Serviceable Obtainable Market): The slice of SAM you can capture in the near term, considering competition, resources, and your go-to-market strategy.
Example: Your SOM could be the revenue from the first 1,000 small businesses your sales team plans to onboard in the next 18 months.
By showing you’ve calculated these figures thoughtfully, you prove to VCs that you understand your market’s dynamics and potential while strengthening your case for investment.
While market sizing is crucial, VCs aren’t just interested in numbers; they want actionable insights derived from those numbers. Here’s how to move from raw data to compelling insights:
Instead of presenting TAM as an abstract $50 billion figure, explain its relevance. For instance, “The small business software market is growing at 15% annually, driven by the increasing adoption of cloud-based tools. This trend supports our focus on simplifying software integration.”
Show that you’ve identified emerging trends or unmet needs. If your product serves a niche, explain why this niche is underserved and how your offering fills that gap.
Example: “Despite a $10 billion market for freelance management platforms, 70% of freelancers report dissatisfaction with current tools due to poor payment tracking. Our product solves this specific pain point.”
Insights are more compelling when backed by real-world evidence. Include data from customer interviews, surveys, or early product tests.
Example: “We conducted 50 interviews with small business owners, and 80% expressed interest in a tool that automates payroll compliance. Early beta users reduced payroll errors by 30%.”
To ensure your pitch resonates, focus on how you present your findings:
Numbers and charts are vital, but stories make your pitch memorable. Weave your insights into a compelling narrative:
The Problem: “Small businesses spend an average of 10 hours a week on payroll compliance, costing $5,000 annually in lost productivity.”
The Solution: “Our platform automates these tasks, saving time and money.”
The Impact: “If we capture just 5% of the $20 billion payroll market, we’ll generate $1 billion in revenue annually.”
Stories help investors visualize the opportunity and your startup’s role in seizing it.
VC investors are looking for startups with massive potential, compelling insights, and strong execution plans. By mastering market sizing, presenting data effectively, and connecting the dots for investors, you’ll build confidence in your ability to deliver returns.
Remember: it’s not just about the numbers—it’s about the story those numbers tell. If you can demonstrate that your startup is solving a real problem in a growing market with a clear path to success, you’ll be well on your way to securing that coveted VC check.
Software like Olympus Intel helps with visualizing the complicated data aspects of your pitch, as it has downloadable presentation-ready graphs and figures to add to your deck.
It also makes determining complicated answers to market sizing, TAM, SAM, and SOM, easier, so you can spend more time where your energies serve you best.
Olympus Intel offers the expertise and tools to make market sizing efficient and insightful.
Ready to transform your market analysis? Let Olympus Intel guide the way.
Questions? Our team would love to hear from you, so please get in touch!
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