Welcome!

Java IoT Authors: Elizabeth White, Liz McMillan, Pat Romanski, Yeshim Deniz, Mehdi Daoudi

Related Topics: Agile Computing, Microservices Expo, @CloudExpo

Agile Computing: Blog Feed Post

Six Things VCs Look For in An Investment

Questions to help validate your startup idea

As a serial entrepreneur, I learned a lot of lessons from things that didn’t work. These lessons later on shaped my ideas on what would be needed to build a successful startup company. When I became a VC, I realized that these same lessons could be applied to helping evaluate the many businesses that I was getting to see. Whilst the following criteria are by no means a guarantee of success, or the only criteria that you should think about, I do believe they can be very helpful.

So in no particular order, here is a list of six questions that I learned to ask to validate my own startup ideas, that now shape what I look for in an investment. I hope this list will help you validate your idea:

1.  An extraordinary entrepreneur with unique insight

  • Does the entrepreneur show the extraordinary drive, energy, passion, and commitment to take on the tough task of starting a company? And do they appear to have the ability to attract a first class team?
  • Does the idea that you are working on come from an area that you know extremely well and where you have an unique insight?
    • An entrepreneur working in an area where they have no knowledge or special insight rarely works.

2.  Market

  • For B2B startups:
    • Is there extreme pain being felt by an individual or group?
    • Is that individual or group in a position to spend money to solve that pain?
  • For B2C startups:
    • Is there strong enough motivation for the consumer to really want to use your product/service?
  • Market size: are there enough people with this pain/motivation to build a large business?

3.  Product

  • Does this product/service adequately address the need (without introducing new problems in the process of adoption)?
  • Is there long term sustainable differentiation and barriers to entry?
    • The differentiation needs to be strong enough to beat any potential major competitors whose size, distribution, customer base, and credibility, would give them an immediate unfair advantage if they decided to compete, even with an inferior product.

4.  Business Model

  • Can you build a viable business model around the solution?
    • Specifically most startups fail because it costs more to sell their product than they are able to make from the sale. So a big part of a viable business model is determining a cost effective way to sell the product. The other part of it is figuring out a great way to monetize each customer.
    • For more details on this topic, see Business Models, and Why Startups Fail.

5.  Management Team

  • Do you have the beginnings of a great management team?
    • It is well understood that a great management team plays a huge role in increasing the chances for success.
    • A players attract other A players. B players attract C players. Therefore the starting team should ideally be all A players.

6.  Capital Efficiency

  • Can the company be built in a capital efficient way?
    • With lower exit valuations, the one reliable way to ensure both the entrepreneur and VC will end up with a good return is to build the business using a small amount of capital.

Further Thoughts

Two of the most common issues that I encounter when hearing pitches from entrepreneurs stem from the same entrepreneurial trait: entrepreneurs are often by nature very passionate about their particular product or technology. In itself this is a good thing, but unfortunately that passion is often blinds them to some important issues:

  • They don’t focus on how they are going to acquire customers in a cost effective way, as they believe that people will either beat a path to their door, or that their product will go viral as everyone will love it so much they will tell all their friends.
  • They fail to look at whether the need their product aims to solve is important enough to get the customer to overcome inertia and purchase it.

I hate to admit it, but I have made both mistakes myself. In my fourth company Watermark Software, we introduced a document imaging product that was so cool that we got half a page coverage in the Sunday New York Times, and great reviews in all the leading publications. Even your grandmother would have thought the product was cool. However cool did not translate into purchase orders, and it took us another 18 months and two versions later to finally get the product focused on vertical customers in banking and insurance that processed lots of paper before our sales finally took off. This was a painful lesson that I won’t forget.

My hope is that other parts of this web site will help address the question of how to cost effectively acquire customers (see Building a Sales and Marketing Machine), and also help to think through how to balance the cost of acquiring customers with the ability to monetize those customers (see Business Models, and Why Startups Fail). I would love to help  you avoid making the mistakes I made in the past.

Read the original blog entry...

More Stories By David Skok

David Skok joined Matrix Partners as a General Partner in May 2001. He has a wealth of experience running companies. He started his first company in 1977 at age 22. Since then he has founded a total of four separate companies and performed one turn-around. Three of these companies went public.

Skok joined Matrix from SilverStream Software, which he founded in June 1996. Prior to its July 2002 acquisition by Novell, SilverStream was a public company that had reached a revenue run rate in excess of $100M, with approximately 800 employees and offices in more than 20 countries around the world. His work as a value added investor is best known for helping JBoss take its Open Source business to a successful exit with its sale to Red Hat, and for helping AppIQ, Tabblo and Diligent Technologies, which have all had successful exits, from their inceptions to their acquisitions by HP and IBM.

He serves on the boards of Digium (makers of the very popular Asterisk Open Source PBX/telephony software), CloudSwitch, Enservio, OpenSpan, Solidworks, VideoIQ, and HubSpot. In addition to his broad focus on enterprise software, he is specifically focused on the areas of cloud computing, Open Source, Software as a Service (SaaS), marketing automation, virtualization, storage, and data center automation.

Comments (0)

Share your thoughts on this story.

Add your comment
You must be signed in to add a comment. Sign-in | Register

In accordance with our Comment Policy, we encourage comments that are on topic, relevant and to-the-point. We will remove comments that include profanity, personal attacks, racial slurs, threats of violence, or other inappropriate material that violates our Terms and Conditions, and will block users who make repeated violations. We ask all readers to expect diversity of opinion and to treat one another with dignity and respect.


IoT & Smart Cities Stories
At CloudEXPO Silicon Valley, June 24-26, 2019, Digital Transformation (DX) is a major focus with expanded DevOpsSUMMIT and FinTechEXPO programs within the DXWorldEXPO agenda. Successful transformation requires a laser focus on being data-driven and on using all the tools available that enable transformation if they plan to survive over the long term. A total of 88% of Fortune 500 companies from a generation ago are now out of business. Only 12% still survive. Similar percentages are found throug...
Druva is the global leader in Cloud Data Protection and Management, delivering the industry's first data management-as-a-service solution that aggregates data from endpoints, servers and cloud applications and leverages the public cloud to offer a single pane of glass to enable data protection, governance and intelligence-dramatically increasing the availability and visibility of business critical information, while reducing the risk, cost and complexity of managing and protecting it. Druva's...
BMC has unmatched experience in IT management, supporting 92 of the Forbes Global 100, and earning recognition as an ITSM Gartner Magic Quadrant Leader for five years running. Our solutions offer speed, agility, and efficiency to tackle business challenges in the areas of service management, automation, operations, and the mainframe.
The Jevons Paradox suggests that when technological advances increase efficiency of a resource, it results in an overall increase in consumption. Writing on the increased use of coal as a result of technological improvements, 19th-century economist William Stanley Jevons found that these improvements led to the development of new ways to utilize coal. In his session at 19th Cloud Expo, Mark Thiele, Chief Strategy Officer for Apcera, compared the Jevons Paradox to modern-day enterprise IT, examin...
With 10 simultaneous tracks, keynotes, general sessions and targeted breakout classes, @CloudEXPO and DXWorldEXPO are two of the most important technology events of the year. Since its launch over eight years ago, @CloudEXPO and DXWorldEXPO have presented a rock star faculty as well as showcased hundreds of sponsors and exhibitors! In this blog post, we provide 7 tips on how, as part of our world-class faculty, you can deliver one of the most popular sessions at our events. But before reading...
DSR is a supplier of project management, consultancy services and IT solutions that increase effectiveness of a company's operations in the production sector. The company combines in-depth knowledge of international companies with expert knowledge utilising IT tools that support manufacturing and distribution processes. DSR ensures optimization and integration of internal processes which is necessary for companies to grow rapidly. The rapid growth is possible thanks, to specialized services an...
At CloudEXPO Silicon Valley, June 24-26, 2019, Digital Transformation (DX) is a major focus with expanded DevOpsSUMMIT and FinTechEXPO programs within the DXWorldEXPO agenda. Successful transformation requires a laser focus on being data-driven and on using all the tools available that enable transformation if they plan to survive over the long term. A total of 88% of Fortune 500 companies from a generation ago are now out of business. Only 12% still survive. Similar percentages are found throug...
There are many examples of disruption in consumer space – Uber disrupting the cab industry, Airbnb disrupting the hospitality industry and so on; but have you wondered who is disrupting support and operations? AISERA helps make businesses and customers successful by offering consumer-like user experience for support and operations. We have built the world’s first AI-driven IT / HR / Cloud / Customer Support and Operations solution.
Codete accelerates their clients growth through technological expertise and experience. Codite team works with organizations to meet the challenges that digitalization presents. Their clients include digital start-ups as well as established enterprises in the IT industry. To stay competitive in a highly innovative IT industry, strong R&D departments and bold spin-off initiatives is a must. Codete Data Science and Software Architects teams help corporate clients to stay up to date with the mod...
Scala Hosting is trusted by 50 000 customers from 120 countries and hosting 700 000+ websites. The company has local presence in the United States and Europe and runs an internal R&D department which focuses on changing the status quo in the web hosting industry. Imagine every website owner running their online business on a fully managed cloud VPS platform at an affordable price that's very close to the price of shared hosting. The efforts of the R&D department in the last 3 years made that pos...