What Do Investors Want in a Startup?

(Part of Session 8 Online Resources)

What do investors want? A common topic for blogs, entrepreneurs, and investors. So here’s another view on it, from somebody who knows:

Naval Ravikant, the speaker, has been through the ringer a few times, on both sides of the investment table. I watched one of his ventures, epinions.com, very closely, because my daughter and son in law were employees. So I now, a few years later, I follow his Venture Hacks blog.

Most of what he says here is pretty standard. And if you’re interested, his fellow blogger transcribed this interview on venture hacks. Some highlights:

“I look for two things that are paramount above all:

  1. Great team. It’s obvious. It’s a tautology. Everybody says it. You have to be working with some of the best people in the industry you’re in.
  2. Huge market. Niche markets just don’t work because the first idea never works. You always have to change the idea, so you need room to maneuver in a big market.

“There are three more factors that I look at. Not all three of them are required but I prefer a company to have at least two of them:

  1. Difficult technology that is compounding over time.
  2. A proprietary distribution channel. A clever viral marketing, or SEO, or partnership, or whatever strategy that gives them a leg up over competitors.
  3. A direct monetization model. Something more than throwing up 10 cent banner ad CPMs.”

Naval has more authority on this than I do, but his reference to niche markets bothers me a bit. I like niche markets in a world that is constantly splintering and dividing itself finer and finer. Some of the biggest markets there are started as niches: Facebook, for example, focused first on a few university campuses. Yahoo was a niche — the Internet — when it started. Starbucks was once a niche (gourmet coffee, affordable luxury) in the Northwest.