Introduction to Venture Capital Lessons Learned from 15,000 Pitches

• Prioritize the Team (People): For early-stage investing, the founding team is more important than the specific problem or valuation. Investors look for relevant domain expertise, a complementary working dynamic, and a deep sense of self-awareness regarding what skills are missing from the current team.
• Define Relevant Market Size: It is not enough to cite massive global spending figures, founders must demonstrate a deep understanding of their relevant market size and specific customer segments.
• Master Unit Economics: To approach professional investors, founders must prove they have a repeatable customer acquisition engine. This requires knowing two magical numbers–Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLV)–with a minimum target ratio of 3:1.
• Be a Data-Driven Learner: Great founders are not just visionaries, they are learners who run fast-failing experiments and use data to pivot. High-quality data can be captured simply (e.g., in Google Sheets) as long as it is used to answer critical questions like why customers are churning.
• Understand the Risks of the Asset Class: Venture investing is highly illiquid (often a 5–10-year commitment) and undiversified. Investors should expect to lose money on about half of their checks, with the majority of returns typically coming from a single hit that returns 10x to 50x.

What is the best advice for someone wanting to make a career switch into venture capital?
Beyond networking and community engagement, you should write an investment thesis. This is a 10-page deck detailing your perspective on a specific industry, why it is exciting to invest in now, and three specific startups you would back.

What specific factors drive up a startup’s valuation?
Valuations are significantly boosted by recurring revenue (such as SaaS models), network effects (where users marketing on your behalf lowers acquisition costs), and high-switching costs (which increase customer lifetime value).

For a first-time founder, is it better to seek an angel investor or a VC?
You should pursue both. Fundraising is a network-driven business, so you should focus on whoever you can get in front of most easily through a warm introduction.

Is revenue required to get funding as a startup?
While pre-seed funding exists for companies before they have revenue, roughly 80% to 90% of seed-funded startups in 2019 had revenue. Most professional investors now expect post-revenue data to validate the business model.

Is there a risk of groupthink for founding teams that have worked together previously?
While groupthink is a risk, the benefit of a team that has fought and succeeded together usually outweighs it. To minimize groupthink, investors look for diversity in gender, race, age, and professional background.