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What Do Venture Capital Firms Look For?

Venture capital firms tend to specialize. They focus on a specific stage of company and one or two industries. A VC firm may focus on companies in the medical device field, for example, or maybe in clean energy.

Because VCs deal with risky investments, they have to make sure that they understand their chosen industry and technologies inside and out. Therefore, your company must fit into the firm’s profile before the firm will consider investing. (You can usually find out which industries a VC firm invests in on the firm’s website under the About Us tab.)

Focusing on different stages

VCs may invest in seed stage companies (companies with no revenue or little revenue) or stage 2 companies (those with $5 million to 50 million in revenue), or they may fund mergers and acquisitions of larger companies. Companies of different sizes have very different issues and needs.

Focusing on specific industries

Venture capitalists must be experts in their chosen industries, understanding it completely. This expertise is especially important because the best portfolio companies have game-changing technologies that disrupt markets. Predicting the success of companies that don’t have any contemporaries is a very challenging task!

Focusing on the company’s progress and potential

Most venture capitalists, even those who invest in seed stage companies, look for the following:

  • That the company has a product or has made a lot of progress toward a product

  • That the company has a strong team that can execute its plans

  • That the company has connected with its target customer and understands its market

These factors impact your company’s risk level. Investors have a level of risk that they are willing to accept in a company. Investors interested in later stage companies want you to have removed more of the risk from your company by progressing through necessary milestones. Seed stage investors are more accepting of risk and use a high risk profile as a way to get more equity for the same investment dollars.

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