What Venture Capitalists Look For In Investments

As a venture capitalist, what are the top things you look for in an investment? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.

Answer by Anthony Lin, Managing Partner and Head of Intel Capital, on Quora:

The key components to finding a good company generally come down to three Ms… Management, Market, and Mote.

A good management team is critical to the success of a start-up. Those with prior start-up experience tend to be the strongest, although not always. The most critical factor in a team is resilience. Start-ups do not generally land where they started and having a team that can weather the many challenges and pivots required of a start-up is critical. And, with every great founder, they also need a strong bench and the ability to recognize where they have gaps that others can help fill. We have examples in our Intel Capital portfolio of both great visionary founders who brought on strong technical teams to help achieve their vision and strong technical founders, often spun out of university research, who brought on a go-to-market team to bring their technology to customers. Additionally, we strongly believe that diverse teams are the best performers, with multiple perspectives around the table to challenge ideas and think creatively about solutions. We are very proud that approximately 20% of our portfolio have diverse management teams.

Market opportunity is also a critical factor. How big is the addressable market for this product or solution? In order for a typical venture model to succeed, a company needs to be capable of achieving venture-style returns. Any VC will tell you that they need to have companies in their fund who have the ability to “return the fund.” For Intel Capital, that means that we need companies that have significant market potential. It isn’t just about market size; however, it also comes down to the concentration of the market and how likely it is that the market has room for new incumbents. For example, the smartphone market is massive, but a start-ups ability to make room in a market that is dominated by Apple and Samsung is difficult to imagine.

The last component is the mote or how defensible a company is at maintaining its market position. A company must be differentiated enough to be able to win customers and keep them. How sticky is your product? How easily could a customer switch off of your solution to find something that is cheaper or better integrates into their environment? What does your roadmap look like to keep you ahead of others in the market? Being successful means adopting Intel legend Andy Grove’s “Only the Paranoid Survive” mentality and keeping a razor focus on staying ahead of the competition. This mentality means that founders need to be vigilant about ensuring that they understand the pain points for their customers and developing a product to meet those needs. And, just as important, after a customer adopts the solution, it means communicating frequently with the customer to understand their user journey. For software companies, when a customer churns, it is understanding why the customer moved away from your solution and what you are going to do to fix those concerns for other customers. Founders also need to keep a close eye on competition, including where they fit into the market and how they are going to uniquely sell to your current and future customers.

Selecting companies in whom we are going to invest is more an art than a science. However, these critical areas are just a few of the space’s investors should spend time assessing in their diligence cycle. Ultimately, when we make an investment, we are committing to 5, 7 or even 10 years working with a founder and both the investor and company need to determine if they are a good fit for engaging in the long term.

This question originally appeared on Quora – the place to gain and share knowledge, empowering people to learn from others and better understand the world.