What VCs Are Looking For In 2015

With a new year comes new resolutions and, for many entrepreneurs, that means a commitment to finally starting their own business or growing the one they already have. Of these, a lucky few will receive investment and strategic partnership from the likes of Erik Rannala, Managing Partner and co-founder of Mucker Capital, a west coast-based venture capital (VC) firm which provides companies with their earliest stage institutional funding.

I spoke to Erik about what he and other VCs are looking for in potential investments this year and how entrepreneurs can best position themselves for conversations with the venture capital community.

Simon: What’s the state of the VC market in 2015 – generally are you (and other VCs) planning to make more investments this year?
Rannala: We plan to remain quite active in 2015. We continue to see very compelling businesses led by extraordinary entrepreneurs, and as long as that is the case, we will be actively investing in new companies. In general, we believe that this is one of the most exciting times in history for technology entrepreneurship. The rate at which technologies and business models continue to evolve — and in the process, transform existing industries and create new ones — makes us feel very fortunate to have the privilege of working with some of these extraordinary entrepreneurs.
Simon: How much of the strategic investments you make originate from firms pitching you vs you looking for and seeking out specific offerings to complement your portfolio?
Rannala: It’s certainly a combination of both. There are areas of particular interest to us where we actively seek out new companies and entrepreneurs with whom we can develop relationships, with the goal of ultimately investing in the company. But likewise, we are fortunate to meet companies and entrepreneurs in the course of our work whom we otherwise might not have known, who are often working on ideas we ourselves never would have conceived of.
Simon: What do you look for in a potential investment? Eg the strength of the idea, the quality of the presentation, established customer/user base etc?
Rannala: We are very focused on markets and teams. In particular, venture investments typically require that companies are pursuing very large addressable market opportunities of at least $1B, ideally in markets that are somehow in transition and/or poorly served by existing players, making them more susceptible to disruption. (Incidentally, this does not mean companies pursuing smaller addressable markets are not good business opportunities, they just may not be a fit for the economics of venture capital funds.) And, we also look for entrepreneurs with deep domain expertise who have accomplished extraordinary things in the past. The deep domain expertise may be self-explanatory, but the reason we look for a pattern of accomplishments is that starting and scaling a company to become very large is so difficult, and takes such commitment and endurance, that individuals who have accomplished similarly unlikely achievements in the past often are well-suited for the challenge of successfully building a company.
Simon: How important is the person pitching you vs the product / idea / market potential? Put another way do you find yourself backing someone because you believe in them more perhaps than the idea? Or conversely, might you see a great idea or product but demur from investing because you don’t believe in the founder/founders?
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