There are so many different answers at a tactical level.

Most U.S. VCs are looking for potential unicorns and decacorns, period, except for the smallest funds.

The qualitative side (great CEO, big market – potentially, disruptive tech) etc. are of course necessary and I’ll leave to the other answers.

For me at least, though, as primarily a “late seed” investor … I’ve boiled the quantitative side down to one basic question:

Do I think the Next Guy will potentially (>33% chance) pay 5x what I am paying? I.e., in the next round.

When I’m investing, usually:

  • There is revenue, and it’s repeating, but it’s still early. $8k-$100k a month.
  • There is a great CEO, but no management team.
  • There are a handful (maybe even just 1 or 2) early “really good” customers, but maybe no logos and limited proof points in the enterprise at least.
  • The company isn’t hot, often is in a space that seems boring, and has little PR or attention.

So then I ask myself IF:

  • We 3x-10x the revenue in the next 12 months; AND
  • We add 1–3 great folks to the management team; AND
  • We 10x the bigger, logo, higher ACV customers; AND
  • We help make the company a little more hot; THEN

Can it be worth 5x as much in the next 18 months if we pull that all off?

Often the answer is Yes, for the right ones.

This isn’t the reason to pick an investment, not at all. But it’s the thought process I use to differentiate one good one from another.

It also helps me back into proper, and improper, valuations.

Given the time and stage (Late Seed) and amounts ($750k-$4m) I invest.

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