How Venture Capitalist Diane Yoo Chooses Her Startup Investments

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With so many entrepreneurs and startup ventures seeking investment opportunities, it’s crucial that venture capitalists (VCs) create a list of criteria they want their potential investments to meet. Of course, every VC dreams of investing in a business that can grow into a billion-dollar unicorn company, but these instances are few and far between. As such, VCs have to consider a number of factors when choosing which companies or entrepreneurs in whom to invest.

With more than 15 years of experience coaching, mentoring and investing in hundreds of different companies and the entrepreneurial minds behind them, I myself am no stranger to stringently analyzing the management team, operating model, market opportunities and risk factors of the businesses that I ultimately choose to invest in.

If you are an entrepreneur, startup founder or business owner wondering how you can best structure your pitch to acquire a VC investment, I offer some insight as to what my own process looks like when selecting a particular company or entrepreneur.

A proven track record of success

Like most other VCs and investors, one of the most important qualities I look for in any investment is the potential. That means the potential of the business’ core team as a whole and as individuals. I have to ask myself, “Do the company’s core leadership team and the individual people on it have the track record of success that can carry this company forward?”

Likewise, if the company’s CEO, in particular, doesn’t have a proven track record as an entrepreneur, it’s far less likely that they’ll receive an investment.

Both the potential and proven past successes of a venture’s core team are a huge factor in determining whether they will receive investment capital. However, that does not necessarily mean that I refuse to invest in a company or team that is taking its first dive into the world of entrepreneurship.

If a company’s CEO or executive team possess the soft skills necessary to be a true leader — such as empathy, compassion, humility and a hunger to continue learning — this tells me that they would be a good candidate for mentorship, even if they aren’t presently the best candidate to receive an investment. I always tell others to beware of uncoachable founders. Those sorts of entrepreneurs can land a fund or board in deep water if they aren’t willing or able to change.

Also by Diane Yoo: The Venture Capital Diversity Gap

Resiliency in the face of the bigger picture

Along with the qualifications, track record and experience of an entrepreneur or a company’s leadership team, another quality I search for when vetting investment candidates is their ability to remain resilient when seeking to grow their venture toward an eventual successful exit.

If a founder or entrepreneur has previously been able to build a company or business into one that has seen a successful exit, this tells me that they have shown their efficacy as a leader and are more knowledgeable about their given industry. At the same time, it will increase their chances of receiving co-investment opportunities with other VCs and investors, which can help expedite the vetting and due diligence process.

The ability for a business founder or startup’s leadership to grow their venture into a company that is able to see a successful exit relies heavily on their capacity to remain not only resilient in the face of adversity, but also their ability to remain adaptable when confronted with challenges.

Every entrepreneurial leader needs to be able to creatively think outside the box. Each company and its leadership team is bound to inevitably run into hurdles that could make or break their business model and ability to grow as a business. This past year has highlighted that with the pandemic. If they can remain dynamic in the ways they approach and solve challenges, this will give them a much-needed competitive advantage over those founders and leaders who can’t, including their ability to raise additional capital in the future.

Concluding remarks

Having built my investment portfolio from the ground up into one encompassing companies across multiple industries over nearly two decades, I am able to better understand the unique pain points entrepreneurs and business founders face when seeking investments to grow their ventures. Similarly, this experience has granted me the ability to more deeply vet and analyze the entrepreneurs, companies and other entities with whom I ultimately choose to invest.

With this insight into my own investment criteria and process, I hope that more entrepreneurs and founders will be able to continue building their skills to deliver solid pitches that will land them higher quantities (and qualities) of investment opportunities.

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