Not all good businesses are fundable. Just because an investor passes on making an investment into a startup doesn't mean the company is not successful and/or going to be successful. What is means is that from the investor's lens:
- They have better opportunities in the pipeline
- They don't believe a 'venture' acceptable return is achievable
- They can't add value
Entrepreneurs often get this confused. There is a big difference between a startup and a 'VC startup'. Frequently I'm asked what I look for in my initial meeting with a startup to determine if it is fundable. Here they are:
- Is the idea credible? Does it pass the laugh test? If I know a little about the industry I use that to test their assumptions? If I don't, I ask a lot of questions to learn more.
- Is the team credible? What experience do they have in the industry? Are they entrepreneurs and/or have that spirit? Do I like them? How do they handle themselves?
- Is there an opportunity? Are they asking for investment that fits my profile? Could I attract other investors to it as well? For example a company saying they need $5M for TV ads with v1 product does not meet that criteria :)
In summary, is there a kickass team with big ideas that can generate extraordinary value.
Usually after the first meeting I like to step away, gather my thoughts, and research the idea to determine my next steps. I don't like to make a snap judgment, especially because I know I usually can find the positives in the deal. That is, I don't want give false guidance from an emotional opinion. Now there are times I really like everyone and know exactly what I want to do next. Also there are times I know it just isn't a fit and I say that. But most case, I like to step away before deciding on the opportunity.
This is my investor lens.