3 questions VCs will ask you before funding

Monday April 07, 2014 , 4 min Read

Every startup will have a passionate entrepreneur behind it who fell in love with an idea enough to give it his all. But to succeed, that is not enough. Others have to fall in love with your idea too. Others include investors. How do I get funded is a question we at YourStory often hear, and we decided to ask investors what makes a startup exciting enough for them to bet on.

Here are the top traits that emerged out of the discussions. These are 3 key questions investors will seek answers from entrepreneurs before deciding on funding the startup.

1) Do you have the guts and drive to cross the dark valley?

"When an entrepreneur succeeds, there is so much glamour and halo attached to them. What is forgotten or undervalued is the walk through the dark valley entrepreneurs go through," Vani Kola, Managing Director, Kalaari Capital, told us. Before she became a VC, Vani Kola had built two successful companies in Silicon Valley and exited them with billion-dollar valuation. "There are times when you can't access capital, nobody believes in your idea, and even when you are winning or think you are winning, nobody really gives any value to the growth you are creating. Sometimes you don't know how in the next six months you can take your business to the next level. There are so many lonely, dark spots in the growing of your business. As I have experienced those personally, I look at an entrepreneur and see, do they have the guts and drive inside them to cross that black hole? Will they get consumed by that? Will they quit or will they persevere?" This is one quality she looks for in an entrepreneur. "That elusive quality of perseverance -- People who can compartmentalise these inevitable problems, which are costs every entrepreneur has to bear, and have immense faith on their product or service, and have a deep passion to pursue it -- is something that I, having been an entrepreneur myself, empathise with. On the days things don't go great, this quality will see the entrepreneur through," she says.

2) Can you transmit your passion and faith to the investor?

At the stage of seed and series A round of funding, an entrepreneur doesn't have numbers to back him, and therefore investors have a tough decision before them. "You don't know whether the business will take off or taper off; you don't know whether the entrepreneur who delivered the business from ten lakhs to five crore rupees can actually build a business that looks like it can go to fifty crores. You don't know whether the team is fully in place to do that. You don't know whether the market sizing is yet niche or is it going to grow to a 20 million or is it going to cross that 100 million mark which everybody is looking for in India. And therefore an investor is far more hesitant," explains Karthik Reddy, co-founder and managing partner of Blume Ventures. "The investors who eventually end up cutting the cheque are those who become equally passionate about solving all those questions. They see that spark in the entrepreneur. They see that market opportunity, just as the entrepreneur sees it. At seed, it is probably an extreme version of that shared passion and faith."

3) How good is your team or can you build a great team?

However good your product is, however good a coder or business head you are, without a complimentary team member or without the ability to build a great organisation you are not going to survive and make it to series A, Karthik Reddy says. "The learning from three years of seed investing is that the team is more important in our evaluation matrix as we mature as a fund. Without a good team, even if you somehow make it to series A, you are probably going to falter before you get to series B, leave alone grand hundred million exit stories." According to him, investors should walk away from the opportunity however good the idea might be or however much they relate to the idea if the team isn't strong enough or the entrepreneur looks unlikely to be a good team leader. "After all, an investor is not going to run the startup for the entrepreneur. So fundamentally, if they are not going to make their business work themselves, you shouldn't invest in it."

Do you have the right answers to these three questions? Tell us in the comments below.