Deciphering what VCs are looking for
Fundamentally, when investing in early-stage companies, investors are looking for a solid management team, a good return on their investment and the opportunity to realize that return within a reasonable period of time. A solid management team is essential. In early-stage investments, VCs invest in people as much (if not more) than they invest in ideas or markets. It is critical that you be able to demonstrate that you have assembled a management team comprised of people with relevant experience and expertise who, above all, have the drive and determination needed to weather the many ups and downs of building a successful venture.
Next, be prepared to demonstrate the potential for a big return on investment in a relatively short period of time. Having a unique product in a substantial or rapidly growing market is key. It should come as no surprise that being the 5th or 6th or 7th product in an already saturated market is unlikely to lead to the “home run” investment the VCs are seeking. Ticked off those boxes? That's great, but big markets and rapid growth aren't enough.
VCs are not in the business of doling out money for indefinite periods of time, because they need to return their investment dollars and profits to their own investors. And so, they want to know going into an investment that they will have a good opportunity to get their money back and more (hopefully much, much more) in a fairly short period of time (think 3–5 years). Is your company a good acquisition target or does it make more sense to take it public? As hard as it is to think about the “end game” at the beginning, you have to have an exit strategy that you can clearly communicate to your investors.