What we look for in founders

Demystifying the founder pitch

We often hear from founders that the VC pitch process feels like a black box. This post is an attempt to try to shed some light on what VCs (at least we at Moxxie Ventures) look for.

Between personal angel investing and Moxxie Ventures, we have invested in over 150 companies. We have evolved our criteria over 10+ years of investing, but the core tenets of Market, Team and Product have remained relatively durable.

Market

We look for founder-market fit, and founder understanding of the market.

Founder-Market fit means why are you working on this problem? What previous experience in your life brought you to this moment? Why is it deeply meaningful to you? Would you make this your life’s work even if there were no potential financial reward? What drives you to work hard on this, even when things look impossible?

Regarding founder understanding, we should be able to talk to you for 45+ mins on this topic, learn an incredible amount, and never dig deep enough to get to a “I don’t know the answer to that.”

In this conversation, we’d expect to cover:

• Most obviously, how large is the overall market?

• Who are all the potential customers? What are their unmet needs? What specific sub-segment of the market is clamoring for your product? How are they defined? What are their salient characteristics compared to others who are not in your ideal customer profile (ICP)? Why did you choose this ICP vs. something else?

• Who are the competitors in this space, and how will you beat them? Why are you different? Answers could include: features, execution speed, pricing, branding, etc. It’s almost never the latter two for early stage companies.

• What is the competitive dynamic? Is this a winner-take-all business, a network effect business, a potential oligopoly, or an area where many players can exist? If the latter, what segments the players?

• What is the history of this market, what lessons are to be learned from all the defunct companies or products that came before?

• What is different this time around (market timing) that explains why someone can win now?

• What exogenous / macroeconomic risks exist in this market, factors that no company can control?

• What is the order in which you will release products/services to start capturing part of the market? Why in that order, and how does one step reinforce future steps? This is often called the beachhead, or the “land and expand” strategy.

That’s it. Do yourself a favor and skip the usual TAM/SAM/SOM concentric circle slide. No one believes them anyway.

Team

We partner with the best folks on the planet (where best is defined specifically as “the best people to solve this problem right now”).

• Does the founding team have all the key skills we need to get to product market fit (PMF), early commercial traction, and beyond? This usually means the technical know how to build a product efficiently, as well as commercial sensibility to run early founder-led sales.

• Can the founding team hire? Do they know how to attract, evaluate, sell, and motivate top-tier talent?

• At a minimum, we look for founding teams with at least one technical person. It’s too hard to hire and make early progress without this.

• What’s the founding story? Why did this team come together? Why do we believe they will stick it out and band together in the face of much adversity and a long uphill struggle to build an enduring business?

• What is each founder’s personal story? What have they accomplished previously that was very hard, that not everyone could do? This can be academic achievement, professional achievement, founding/running a company, or something else?

• What kind of character do each of the founders have? Will they be honest and ethical even when they are down and out?

• We like to see examples of how founders think. This can be through strategic plans, investor communications, or otherwise. Do they outline assumptions and make arguments logically? Are they clear eyed about how each assumption is going? Are they structured thinkers? Are they parsimonious with their communications? Can they get 5 mins worth of information across in only 5 minutes?

• Finally, is each founder an open mindset or fixed mindset person? How do they learn? What are examples of mentorship in their lives, both as mentees and maybe as mentors? Do they value that? When has it worked or not worked for them?

• Finally, are they the type of people we want to work with for years? Will it be rewarding and fun? Do they know us well enough that they can confidently say that we are the types of people they want to work with?

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Both Market & Team have to be a “100% yes” for us to contemplate investing. We just haven’t seen even the best teams be successful in the wrong market. We have walked away from exceptional founders (ones we’ve worked with before and have high confidence in), when they are building in a space that we are not bullish on. We always wish them the best, hope we are wrong, and that they go on to be quite successful!

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Product

A working or at least early working product is the only one of the three that is a nice to have, not a must have. If it doesn’t exist yet, we can consider investing anyway. We’d classify this as a pre-seed, with resulting smaller valuation and round size. In that case, we look for understanding of what needs to be built, in what order, for whom, and why.

That said, most of our investing is at the seed stage, and we want to see a working product. We’re especially interested in:

• Why did you decide on this feature set? How do you understand what customers need and prioritize features?

• Who is using your product today, and what are you learning from them?

• Who loves this product? Who doesn’t love it? Why don’t they love it (too buggy, not feature rich enough yet, not solving a pressing problem, etc?)

• If you’ve been around long enough to have different cohorts of users, what does per-cohort usage, acquisition, and churn look like?

• What are you building next and why?

• A product is an output of a development process. Tell us about your development process. How do you iterate & learn? How have you changed that process over time?

• We try to get a sense of agility and speed here. How quickly can you pivot, react and ship?

• How do you define product-market-fit? Do you have it? If not, what’s between today and PMF? How will you know when you are there? PMF is a continuum, not a binary yes/no.

Bottom Line

How we evaluate companies is always evolving, though these three key tenets have remained stable for some time. We hope this is at least somewhat helpful as you go out and pitch VCs. If this criteria resonates with you, and you think you are a good match for our investment criteria, we’d love to hear from you (alex at moxxie dot vc)!