On the other side of the table

Recently, my mentor gave the opportunity to sit in some of his VC accelerator interviews (pre-Series A, up to USD$250K SAFE). I’m really grateful for the experience, and thought I’d share my reflections/experiences here.

Note that these are purely my interpretations/thoughts from a single experience, and it isn’t representative of the inner workings of the VC industry.

Personal Reflections

Something surprising to me was that all of the startups we’d interviewed already had traction - either in the form of LOIs (Letter of Intent), MRR (Monthly Recurring Revenue, ranging from $5k to $500k), MVP/POC (Minimum Viable Product/Proof of Concept), Partnerships, etc… I was initially under the impression that most startups applying to accelerators had zero-traction, but I couldn’t be more wrong.

Perhaps, this has to do with the more “risk-averse” nature of VC/Investments in my region - focusing on metrics & proven historical data - as opposed to other regions where people invest in the founding team, even if the idea hasn’t taken off. There’s nothing inherently wrong, just a difference in judgement.

On the VC side, we were primarily concerned with Problem (it is clear), Solution (is it compelling, differentiated?), Market (is it large enough, and do the founders understand it), Team (do they have credibility, execution ability), and Traction (signs of product market fit, early adoption). The questions we’d ask would directly help us assess these areas.

Some questions we’d ask the startup founders include:

• What’s the problem you’re trying to solve? Why haven’t others done it if it’s such a big problem? If they weren’t successful, why can you be?
• What are your revenue streams? Profile sharing, commissions, etc..
• What are your unit economics, profit margins?
• Any regulatory/licensing issues or challenges? E.g. SOC2 compliance, HIPAA compliance, medical/banking licenses to operate
• What are the next major milestones for your company? GTM strategy?

We were given 30 minutes per interview. Initially, I’d thought it was too much time, but again - I was wrong. There’s only so much information one can glean in 30 minutes, and often we didn’t get all our questions answered. I guess on the VC side - one has to prioritize which questions are more important than the rest - something I still have much to learn about.

One of the biggest takeaways I had (and in hindsight is pretty obvious) is to make your problem/solution very clear at the start. There’s many startup applications that the VC team has to look through, and they may not understand the field/industry you’re innovating in. So, make the key ideas relatable & apparent from the beginning. If the team isn’t able to understand what you’re doing, then you’ve probably already lost their attention & buy in.

A good idea is to put the best metrics at the start. VCs have no incentive to do extra homework for you (aka Due Dilligence; DD) unless you pique their interest. Yes, one of the VCs main functions is to do DD, but put yourself in their shoes: You have hundreds/thousands of applications to look through, and only a set amount of time. You’ll definitely not be looking through each application with as much detail. If they can’t understand what you’re working on in the first 30 seconds, or your metrics aren’t provoking, there’s a higher chance your application will just be glanced through.

Takeaways

Here’s some lessons I learned from some of the startups that interviewed with us

• Always have metrics on hand. Have a powerpoint of important metrics/benchmarks (comparison with competitors), business model, revenue streams, funding sources, etc
• During the interview, it’s a good idea to pull out these materials & visually explain, rather than just relying on words to convey the message. It’s much more understandable this way
• Keep all public facing materials updated. This includes websites, social media, etc. A blog that is frequently updated, or a social media account that posts regularly has a higher signal of market engagement
• Make your pitch/ideas as understandable as possible - test it against people who’ve never heard about your product & industry. If the interviewers don’t understand what you mean, they’ll just write what they understand (which isn't much). They have no incentive to ask more questions (i.e. they won't be curious about you unless you truly pique their interest) - they’ve no inherent incentive to put in a good word for you
• Ensure what you say is aligned with what is written in your pitch deck. Your deck may be 3 months outdated, and your current metrics may change. Highlight this.

Closing Thoughts

Startups can be brutal. I recently went to one of the major robotics exhibitions in Shenzhen. There were tons of startups doing the exact same thing - competition is tough. In a time where AI can create webapps, build ideas in minutes, ideas are no longer the differentiating factor. It’s all about the execution, and as people coin it, “Speed is the only moat.”

Something my mentor told me which really stuck is, “You can copy ideas, but you can’t copy traction.” Traction is equally as important as the idea & founding team. You can have two teams doing the exact same thing, but one might have more traction than the other because of “unfair advantages” like access to more business partners, better market understanding, etc.

I always wondered what it was like being on the other side of the negotiating table. It’s eye opening - some lessons you only truly understand once you’ve lived them yourself. This was certainly one of those moments.