Is your business right for VC investment?
We’ve already talked about whether or not seeking VC investment makes sense for the founder here.
But just like VCs need to be a good fit for you, you also need to be a good fit for them.
Let’s put aside the fact that VCs typically have investment criteria, including stage of business and industry, for example Series A stage SaaS, and assume that you already meet their criteria.
What do VCs look for in general?
A really big market. A HUGE market.
Huge market size.
VCs are looking for a huge market size in terms of numbers of customers and dollar value.
The dollar value of the market size needs to be in the hundreds or millions of dollars. Billions of dollars is even better. This does not mean that you believe that you will have billions in revenue. It just means that people/businesses are spending that much annually. For example, the market size for chatbots is $20 billion.
The number of customers that would qualify as huge depends on the price of your product or service. If your product or service is $1 pre year, you will need a lot of customers to make any revenue.
In my Pitch Deck + Financial Model masterclass I’ll show you exactly how to calculate your market size and let you know what kind of market sizes VCs are looking for.
Essentially investors need to be investing in something that will become efficient. This is going to be software, technology, etc.
Businesses with really big labor components will likely not work. For example, advertising agencies basically sell employees time. Selling time for money is not only not efficient it also doesn't work well on large scales. But Amazon Web Services sells the usage of their servers. On a really big scale this works great because they invest in the server (the upfront cost) and customers get value by just using what they need. The more customers, the better for Amazon.
Check out this chart of unicorns, companies valued at $1 billion or more, that shows the types of companies that are ripe for VC investment. (Sorry it’s so small, you’ll have to click on the pic to make it bigger.)
The fact of the matter is that not every company that gets VC investment will be considered a success. And that is ok. You do not need to guarantee a $1 billion IPO when you are raising money from VCs in the Seed and Series A stages. Just paint a really clear picture of the possibilities for your business if you build out your vision.
If you think you are ready to start looking for VC investment and want to learn exactly what you should be putting in your VC Pitch Deck and Financial Model, sign up for my masterclass below.