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What are VCs looking for these days? How has the funding landscape changed?

Answered by: Jeremiah Daly

VC’s are looking for companies that could emerge as category leaders in big markets. I evaluate several key elements when looking at a new opportunity:

1) Team. I want to back the best team in the market that the company is competing in. The elements I look for are integrity, intelligence, work ethic, vision, experience, and competitiveness. I look closely at the company culture, which I have found to be critical to success and generally comes from the top down. I expect management teams to know the details of the business in great detail and look for them to be on top of their key performance indicators (KPIs), financials and other key business metrics. One final question I always ask myself before investing is whether I would want to work for the CEO.

2) Market opportunity. I am looking for companies that can become very large, which I would define as greater than $100 million in revenue over time. In order to achieve that size, the market needs to be large enough to support that much revenue. 10-20% market share is generally a sign of category leadership, so a market would have to be $1 billion to support a 10% market share player having $100 million of revenue. Market growth is another key element. I want to have macro tailwinds from the market accelerating the growth that companies achieve as they gain market share. Disruption is another key factor to look for. Incumbent leaders that have not innovated or the explosion of a new market (i.e. social media did not exist pre-2004) can lead to fast growth and category leadership opportunities for the best companies.

3) Traction. I look closely at the growth and quality of the KPIs of a company and measure them against what I have seen in the market. Fast and sustainable growth with the ability to do so profitably at scale are attractive characteristics for the businesses I want to partner with.

4) Capital efficiency. I want to partner with CEOs that demonstrate capital efficiency when growing their companies. I tell my CEOs to think like they are a general with an army of dollars and to deploy those dollars to get the maximum return on investment.

5) Product. I look for reviews, customer feedback and product functionality and compare the company’s product to its competitors. This goes for both enterprise products and consumer products. Customers always know best, so I seek them out and listen to their pain points, their purchasing decision and their satisfaction.