How to Evaluate Your Startup Like a VC

If you start a company with an eye toward getting the attention of venture capitalists, you will need to hone your thinking to the way such a person would evaluate your firm as an investment. And to be truthful, this isn’t such a bad idea whether you are looking for capital or not. After all, many venture capitalists know what makes a company valuable, and building appeal for them is building it for everyone. Following these steps will make you stand out from the crowd.

What issue are you addressing?

Plainly stated, venture capitalists will want to know what makes your company different than everyone else. What problem does it solve? What opportunity does it exploit? For example, for Uber it was a matter of “Taking a taxi is a pain. How can I solve this problem with an app?”

Are you the best solution?

You have a solution to a problem, but does that make you the best solution to the problem? Not necessarily. If you have a way to demonstrate to someone how your solution is clearly the best, you’re on to something.

Do you have a market?

There are a lot of problems out there that could probably be solved with a variety of marketable solutions. The trouble is, are they worth anything? A good example of this is the medical industry, one which has a number of problems it could address, but the number of those who suffer from the problem that would be addressed is so small that practically no venture capitalist would be interested in investing in it. Venture capitalists want to make money, lots of money, and there must be a large market potential for them to be interested in investing their money.

Is there competition in your market, and if so, how much?

A lot of people fool themselves when they say that they thrive on competition. The truth is venture capitalists want to deal with as little competition as they can for the products and services that they invest money in. If you have a product that you want a venture capitalist to invest in, you need to show them how your product is different or how it will win in a head on head competition with others in the market.

Who is your team?

Venture capitalists place a lot of value not only on a product but on the team that is producing the product. This is, most importantly, the staff that is responsible for running the company. Do these staff members have what it takes to not only create a product but to overcome the challenges that face them in the process of building the business.

What is the business?

Do you have a business plan that incorporates a mission statement, as well as a multi-year capitalization? How much money do you need to raise to accomplish your objectives? Where do you plan to get the money? What do you plan to use it for? Are you making assumptions that you are basing these plans on? If so, what are those assumptions?

Chances are very good that when you answer all of these questions for potential investors, you will find them writing checks to you instead of asking more questions.

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