How do seed VCs pick their investments?

On Friday, I spent a couple of hours at my alma mater talking with student entrepreneurs about their companies.  When I got there, most of them wanted to know how VCs pick their investments and what 500 Startups look for.


I didn’t answer this.

Instead, I said, “Let’s pretend we’re all forming a VC firm right now.  And there’s an entrepreneur coming into the room in 10 minutes.  What questions would you ask him/her to decide if you’re going to invest?”

I wasn’t sure what people would come up with, but here’s the list of questions the group collectively came up with in 10 minutes with my commentary in brackets:


  • Do you have a strong team? [Get more specific – what does that mean?]
  • Does the team have particular domain knowledge or expertise?
  • Have the co-founders worked together before?
  • Can they change directions quickly if needed and make fast, difficult decisions?
  • [What about perseverance, grit, tenacity?]
Originally posted by ixaurore

Customers and traction

  • Do they have product or market fit? [Get more specific – what questions would you ask to figure this out?]
  • Do they have customers? How many?
  • Who exactly is the customer?
  • Are they paying? If so how much?
  • How frequently are customers buying or using? [Or churning]
  • How much does it cost to get a customer?
  • What is a customer worth? [lifetime value]
  • [How much revenue are you making and how has this changed over the last few months? What are your margins?]
  • [How are they getting customers?  What customer acquisition channels have they tried or not tried ?]
  • [Is this growing? How quickly?]
Originally posted by littlehorrorshop


  • What is the market size? [I have disputes about this one but that is a topic for another post]

Problem and solution

  • What specific problem are you solving?
  • [Why are you doing this?  Motivation?]
  • What makes your solution unique or differentiated?
  • Is there any special tech or IP here? [In many cases, probably not worth asking]
  • What is your unfair advantage? [Often there is little-to-none in the beginning but worth asking about this to see how entrepreneurs think about this and see if there is special domain knowledge or special relationships & partnerships]
Originally posted by amidallas


  • What is the cost of equity ownership? [May or may not ask this depending on if our hypothetical VC firm leads rounds or not]
  • [What is a team’s burn rate?]

Obviously, if we had brought in a real entrepreneur to talk with, the list would also include more specific questions about the particular business and/or how the product works.

I was pretty impressed by this laundry list of questions they generated – not bad for 10 minutes!  It looks like I can go retire on a beach somewhere.


How many entrepreneurs are doing their pitch decks all wrong

Even though there are a lot of web resources on how to put together a pitch deck for seed-stage companies, most don’t address how many decks you need and for what purpose. If you are fundraising, you’ll need at least 2 decks:

  1. An email deck
  2. An in-person meeting deck

If you are participating in a Demo Day with an accelerator, you’ll also need a Demo Day deck.

Originally posted by theweekmagazine

Obviously all your decks will be similar, since you are pitching the same company!  All of your decks should:

  • Be compelling – lead with your strongest points first! If it’s team, then lead with team.  If it’s traction, lead with traction.  If it’s a big problem, and you have an unusual solution, go with that.
  • Tell a story – this is not just a series of facts.  The slides must flow together.
  • Be visual  – i.e. verbalize, don’t make an investor read words.
  • Be simple – an investor should understand the slide in 1-2 seconds; don’t make him/her think.
  • Include your contact information so that people can contact you!
Originally posted by the-office-daily

But, there are some major differences…

What is an email deck?

An email deck is what you’ll email to investors if they ask to see a deck first before setting up a meeting with you.

There should be enough information here to be compelling enough to take a meeting with you. BUT, not too much such that they can decide NOT to take a meeting with you.  Keep in mind that many investors could (will!) forward this to other people, so don’t put anything too confidential in here.

Examples of what to put in (not in this order per se):

  • Problem you’re solving
  • Your solution
  • Traction – key performance indicators (could be MRR, growth, users – whatever makes the most sense for your business)
  • Market
  • Team

The purpose of the email deck is to get a meeting – that’s it.  So, you should include facts about your business that will be compelling to get you that meeting and nothing more.

The flip-side is that you shouldn’t include too much – specifically, anything that can be nitpicked.  These are some things I wouldn’t include in an email deck include:

  • How many people you are hiring
  • Financial projections or forecasts

These are hypothetical. The number of people you hire could change, and if an investor thinks you should hire 5 sales people instead of 4, you shouldn’t let that be what stops you from getting a meeting.  Similarly, if you are projecting too high or too low of a revenue number for next year, an investor may think that you are unrealistic or not ambitious enough, and you are not even there to defend your argument when he/she reads your deck.

Realistically, an investor will spend only 10 seconds looking at your deck, so it has to be understandable and concise.  It’s ok, if he / she only understands the gist.  The meeting will allow for detailed discussion.

Lastly, an email deck serves to provide context.  Sometimes an investor you’ve already met with may ask for an email deck so that he/she can send the opportunity to other partners / investors at his / her firm so that they can get context before meeting with you.

What is an in-person meeting deck?

An in-person meeting deck has the meat.  Lots of great people have written about what slides you should have for this deck.  You can find great resources herehere, and here (among many other places).  I don’t need to dive into this in detail.

In short, an in-person meeting deck should have ~10 high level slides with appendix slides that dive into the weeds.  In addition to the other slides from your email deck, include your business model and 1-2 key unit economics (LTV, CAC, churn, etc.).

Originally posted by nasty-parlour-trick

Even for this deck, you’ll want to still keep the slides at a high level.  If an investor asks to dive into the weeds on certain areas, then you can guide him/her to the appendix slides you’ve prepared and fully cover a topic before continuing on.  Some investors prefer to dive into product questions and others really want to dive into customer acquisition channels and unit metrics.  You’ll want to have lots of appendix slides to cater to different audiences, but most of the time, you won’t dive into all of them.

If you’re meeting with an angel investor, this first meeting may be all that you need to secure funding.  But, if you are meeting with a VC, the purpose of this deck is to get the next meeting.  (Be sure you ask questions to understand how an investor decides to invest and what his/her process is.)  At a firm that moves quickly, that next meeting could be an all-partner meeting, which is typically the last meeting needed to make a decision (for seed-stage).

Go get ‘em!

What questions should you ask seed investors?

I’ve ragged on investors quite a bit in my recent posts here and here.

But fundraising meetings are a two-way street.  Entrepreneurs also need to do a much better job pitching.  Specifically, I’ve noticed that many first-time entrepreneurs do not ask any questions.  This is a serious mistake.  Entrepreneurs should learn everything they can about an investor.  Taking investor dollars shouldn’t be done lightly.

Originally posted by urbanrealism

You don’t want to take money from bad apples because down the road when things get tough, investors can:

  • Call their convertible note
  • Potentially replace you (depending on the equity and board situation)
  • Threaten litigation (even if they have no case)
  • And most importantly, be a big pain in the ass and call you all the time

You are looking for a relationship – not just money.

Originally posted by aliens-bro

Before taking an investor meeting (or even reaching out), you should definitely do your homework and research investors.  Make sure to reach out to investors who are actually a good fit for your business (stage, sector, amount, what they look for, etc).  Most websites will spell this all out – especially newer microfunds who are trying to differentiate themselves in the market by going after a specific niche.

In addition, here’s a list of questions you should ask investors when you meet them:

  • How big is your fund? (for VCs)
  • Where are you in your fund?  (for VCs)
  • When will you need to fundraise again? (for VCs)
  • Do you lead rounds? (for VCs)
  • What is your typical check size?
  • Do you reserve capital for follow-on?

This gives you a sense of how much money you can raise from a given firm or individual.  This is really key because there are a lot of investors out there who have no money but are still taking meetings.  It’s OK to take a meeting with an investor who has no money to invest, but you should know that they won’t be able to come into your round until they have raised money so your meeting might not lead to anything.

Originally posted by odditymall

Understanding how much is allocated for follow-on investments also gives you a sense of how much money is left in a fund.  If a fund is $10M and two-thirds is reserved for follow-on, then in practice, there’s $3M for first checks.  If the firm has already deployed $2M, you know that your chances of getting a first-check is slim…

In general, it’s slightly easier to raise from funds that have just raised a fund.  They have a lot of money that needs to be deployed, and so they are more eager to invest.  In contrast, when there are fewer dollars left to deploy, those last dollars will be extremely competitive.

You should find out an investors’ cadence:

  • How many seed deals have you done in the last 6 months?
  • How many seed deals do you anticipate doing in the next 6 months?
  • How long does your process typically take?

And how decisions are made:

  • What is involved in your process?
  • Who is the decision maker?  (for VCs, although sometimes angels need to consult their families or friends)

By the end of the meeting, you should understand

  • Everything about an investor’s decision making process
  • Whether you have a champion to take this to the decision makers (whether it be partners at a firm or their family)
  • What the concerns are with your business in their eyes
  • What the CONCRETE next steps are

If you do not have answers to ALL of these questions, keep asking questions…

Attention investors: can you just be upfront with your thoughts? K thx bye.

The first time I ever tried to fundraise, I was completely clueless.  My team had built a highly technical product that allowed consumers to co-browse with each other, but we had no customers or users.

Originally posted by chloaw

A lot of investors turned me down, but I didn’t even realize it because they were not clear in their rejections.  Investors would tell me:

“Oh this is a very interesting product.  Let’s keep in touch.”

“The technology is quite interesting….thank you for showing it to us.”

As a naive founder, initially I did not push to get to a call-to-action or to learn what the next steps should be.  I had no idea how close I was to successfully raising investor dollars (read: not at all).

As I met with more investors, eventually, in my frustration of not getting anywhere, I realized that I needed to push harder to find out what investors really thought and whether they were going to invest in my company soon.

Still, investors were quite nebulous in their thoughts on my company.  I remember this one phone call very clearly:

“So, are you going to invest?” (I was not sure how to ask this in a great way, so the first time I asked it, I was pretty blunt because I just needed to know the answer.)

“Well, it’s an interesting product.  Let’s chat again in a couple of months.”

“I’m not sure I understand; is that a yes or a no?”

“It’s a no for now.”

Originally posted by yaasbabe

That conversation was just the first step in my becoming a savvier fundraiser, but it took many, many more missteps and poorly-run fundraising meetings for me to eventually understand how this game is played.

Most investors are simply not upfront with their true thoughts because they are afraid to reject entrepreneurs.  They think entrepreneurs will not come back to them later when they have made more progress or have found a better business.  I find that this is particularly common behavior amongst investors who have never been founders.  So this is the type of vacuous email you typically receive as an entrepreneur:



This is a big mistake in my opinion.  Although, founders should also be less clueless on how to run investor meetings and should ask good questions (something I hope to change with this blog), if investors were more upfront with their true thoughts and opinions, founders would find that feedback valuable.

Great founders can take feedback well and can learn and adapt quickly.  The investors I have the greatest respect for are the ones who were candid with me about my company – whether they invested or not – without my having to pry their thoughts out of them.

Originally posted by gurl

I realize it is a tall order to ask investors to be explicit with their feedback.  It’s not a fun job to send tons of rejection emails everyday.  When I first started investing, I was unsure what to write in a rejection email, and so I asked Dave McClure for advice.  He told me to frame my emails positively – what it would take for me to invest?

This has been one of the best pieces of advice I’ve received in joining Venture Capital.  So, I now write entrepreneurs emails like this:


Although, it’s still not fun to be the bearer of bad news, it causes entrepreneurs to come back to me later when they’ve fixed some of my concerns.  This helps me see how quickly teams can learn and adapt, which is one of the best indicators of a team.

Plus, we end up having productive conversations about their progress which actually *helps* me build a relationship with entrepreneurs.

Entrepreneurs: what has been the most helpful “rejection” you’ve received?  Tweet @dunkhippo33.

Calling it how it is: That time I raised $1m for my startup

When I was fundraising for my company LaunchBit, raising money frustrated me to no end.  There was all the rejections.  All the time spent in investor meetings.  All the email follow ups that went nowhere.  We ended up raising ~$1m, but it was brutal.

On the flip side, I often enjoyed selling LaunchBit as a product to customers.  Selling a product had many similarities to fundraising – again, constant rejection, lots of demo calls before getting to a “yes,” and follow up emails that went nowhere.  Even though the two sales processes were similar, somehow selling my product was a very different experience from selling my company for investment.  One was a very fulfilling learning experience, and the other was pure misery and an angering experience.

Entrepreneurs often hate fundraising, not because of the fundraising sales process itself, but because of all the underlying crap that we have to put up with alongside the actual fundraising.  Most entrepreneurs don’t complain about it publicly – I certainly didn’t.  They don’t write public blog posts about their experiences because you end up sounding like a whiner and because you’re afraid that no other investor will take your meeting.


So what is this “fundraising crap”?  It’s all the times that investors:

  • clearly have no interest in your business but want to waste your time with multiple meetings and by “keeping in touch” with no call-to-action or closure.
  • are trying to “pattern match” and have inherent biases based on past successes, but you don’t fit their demographic pattern because you are not a 20-year-old American White Man with a degree from Stanford in computer science who speaks accent-free English.
  • reschedule your meetings multiple times (often on the day of or at the last minute) to take meetings with other entrepreneurs.
  • are too chicken to invest in your company (even if they have conviction) because they do not want to be the only ones.
  • have no money to invest but they don’t tell you that.
  • don’t articulate what will give them conviction – or are even self-aware enough to know – so you can’t effectively sell them on your business.
  • project their weird ideas on whether a company is truly a serious business or is “just a fun lifestyle business” when the founders happen to be
    • Family
    • Married or dating
    • One or more of them is pregnant or has children
  • have no interest in your business but will take advantage of the situation in inappropriate ways.

Truth be told, as a founder-CEO, your job isn’t to change the fundraising process or even to worry about whether it is just or fair or right.  Your job is to cut through the crap as best as you can and raise money for your company.

And so, all of this fundraising crap continues because no one calls it like it is.

Having been there before and now investing in startups and running the 500 Startups Mountain View accelerator, it’s time to call it how it is and change investor-entrepreneur relations.  Going forward, my blog posts will be focused on how I’m trying to make the fundraising process better and more transparent for entrepreneurs and calling things as they are.  Sign up for my newsletter, and look out for my next blog posts.  Let’s change how this industry works!


Special thanks to Andrea Barrica and Chandini Ammineni for reading drafts of this post.  

3 Things I learned about seed investing in 2015

Inspired by my friend and colleague Andrea Barrica, I want to reflect a bit on what I learned in 2015 about seed investing.

I joined 500 Startups as an investor in April 2015, where I run the Mountain View accelerator.  Since then, I’ve led or strongly advocated for 30-40 investments, and I’ve analyzed a lot of data from 500 Startups’ near 1500 portfolio companies.

These are my biggest takeaways:

1. Product-market fit trumps all

As an entrepreneur and now as an investor, I’ve met a ton of highly accomplished, smart founders with strong domain expertise.  I’ve also seen many of these people fail to grow their business because they just can’t find product-market fit.  A smart founder can increase his/her chances of success by being self-reflective and trying to pivot around to improve the unit economics of a business or finding a peripheral product that has more market demand.

But, at the end of the day, hitting upon a product that lots of people use at the right price point is out of a founders’ control.  It’s called luck.  


If you ask investors to pick the #1 criteria they look for in a company, many would say “team” or “market” (and obviously, there are many criteria that investors look at – not just one). Having seen so many companies with both great teams and awesome markets fail, my #1 criteria would be product-market fit.

There are a lot of great founders out there in the world and a lot of big markets, but there are not a lot of products that have product-market fit.  I don’t want to bet on luck.

2. Speed is the best indicator of an awesome team

When investors say they are looking for “awesome teams,” I never understood what they meant.  How do you know whether a team is awesome?  (especially if you don’t have history with that team).

Referrals can be an OK vetting source, but having looked at a lot of companies this year from referrals, I’ve found that referrers have very different definitions of who are “awesome teams.”  Plus, it can be hard to discern how strong the referral is.

I invest in accelerator companies to learn more about teams.  What I’ve learned via the 500 Startups accelerator this year has above and beyond dominated my learnings from doing straight up angel or seed investments.  When you do a seed deal, you put money in, and while you might get reports every once in a while, you never really know what exactly is happening at the company.

When teams come to our space in Mountain View, I get to learn in detail about how they think about their business, how they work together, and how they mobilize.  I get to see everything – from the wins to the founder drama to seeing founders go through aha or learning-moments.


So who are the best teams?  It turns out the best teams are not necessarily the oldest, the youngest, the most experienced, the best-credentialed, or even the smartest.

The best teams are the ones who move quickly; they are fast in all respects.  They execute on short time frames –  time to push product, time to learn, time to hire or fire, time to resolve founder-drama and morale-issues.  They don’t let issues build up. They nip them in the bud.  They tackle challenges head on and immediately.  They are not afraid to ask questions to clarify what they don’t know and are very quick to learn and get help.  How fast a team moves is the best indicator of the greatness of a team, and being quick also helps to extend a team’s runway and try lots of experiments to increase chances of getting to product-market fit.

3. Unit economics > Growth numbers

Although a lot of investors are all about growth growth growth, I’ve seen a ton of high growth companies with poor unit economics get stuck in the later stages of fundraising.

Surprise surprise! Profitability does matter at some point.  If a company is losing more money by selling products than not, this is a very bad sign, even if your growth is phenomenal.


To an outsider not in venture-backed startups, this may sound like a ludicrous insight.  Afterall, shouldn’t investors be looking at whether businesses are viable?  This isn’t altogether obvious in the Silicon Valley.  There’s a pervasive mentality that you should grow quickly so that you can be a winner who takes the whole market.

This is fodder for a much longer blog post, however, I think this “growth-at-the-expense-of-unit-economics” is really only beneficial to perhaps 5% of venture backed companies.  If you are a business who needs everyone to be using your product in order for it to be valuable, then growing at the expense of unit economics makes sense.  Think Uber.  Think Facebook.  But if you’re, say, a SaaS business or an ecommerce company, your 100th customer’s experience is really not any better because you overpaid for the first 99.

Unit economics for the win.



Cover photo by rawpixel on Unsplash