3 Things I Always Look For When I Invest in a Startup
Venture capital is all about finding exceptions.
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What are your three main criteria you look at when investing in a startup? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
I wish it were easy to articulate, but it isn't because in some ways venture capital is all about finding the exceptions - there are no set of rules you can consistently apply.
The great market, great team stuff is obvious and uninteresting but there may be some nuances to those points that are valuable to think about.
On the market - I find myself getting most excited when the founders articulate a point of view on the market or problem that I haven't heard or read before, and forces me to challenge my own assumptions. For example, 4.5 years ago, when I first met Jay Kreps and Neha Narkhede, co-founders of Confluent, they explained why Kafka wasn't just a pipeline for data ingest, but actually the beginnings of a much larger, up-until-then-unarticulated idea - a real-time analog to the data warehouse. They made me change my world view. It was like they told me a secret that very few people knew, but in time would become common knowledge. Thinking about it now, every single company I've invested in has a similar story.
Also on the market - a lesson I learned the hard way is it is much easier if there is something massively changing in the world that creates a tailwind for the startup (or the category). For example, Instagram took advantage of phones with cameras everywhere, and a couple years later, Snapchat took advantage of phones with cameras AND LTE everywhere. I don't believe the timing of those successes is coincidental. That doesn't mean a particular startup doesn't have to beat the other companies in the category, but it does often mean the category will yield a big winner.
On the team - I like teams that have been thinking about the very problem they are going after for a really really long time. There are lots of blog posts articulating this in various ways - Chris Dixon's idea maze concept or the notion of founder-market fit come to mind.
In enterprise some old-school VCs often invest in incredible technology founding teams with the intention of hiring a go-to-market oriented CEO in a couple years. Personally I much prefer founding teams with CEOs who have a deep understanding of the problem/technology/product AND great go-to-market instincts and strong desire to learn and develop those instincts. They are rare, but having all that in one head pays dividends for years and years.
There are lots of other things that matter too - moats and network effects, personal chemistry with the founders, my personal interest and knowledge of the space...
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