What Do Venture Capitalists Look For? A Fireside Chat with Ajay Agarwal of Bain Capital

So...you’ve got a meeting with a VC. Congratulations! We all know how difficult it can be to get them to take notice of your company, let alone give you a pitch opportunity. 

But what are venture capitalists looking for in a company (and its founders)? What types of things do they need to see in you and your product that make them feel like investing is a smart decision?

At a recent SalesCollider MeetUp, I had the chance to sit down with Ajay Agarwal, Managing Director at Bain Capital, to discuss his 30-year career in the field (check out the highlight reel below).

Ajay’s a particularly interesting guy because he spent seven years working as the Senior VP of Sales & Marketing for Trilogy during the dot-com boom, during which he helped the company grow from >$1M in revenue to $300M. Today, he sits on the boards of a dozen companies, so he’s experienced the VC process from both sides of the table. 

During the talk, he spent some time talking about the types of things he looks for in his VC prospects. I’ve outlined them below to help give you some direction as you prepare for those meetings. 

 

3 Things This VC Looks for in Startups

1. Vision

VCs don’t necessarily want to see products that fit neatly into current markets. Oftentimes, they’re looking for companies that are going to dominate a new market.

Speaking about Gainsight, a Customer Success software company for whom he currently serves as a Board Member, he explains that their vertical is a relatively new one. “When I sold software, we never cared about Customer Success,” he says, “The day I got the contract was the last time I ever talked to that customer.”

Of course, the customer’s experience is much more important in today’s world, where the majority of SaaS companies make their revenue through subscriptions and upgrades.”

This is something that Gainsight’s founders know well and also a major reason why Ajay found the company to be worthy on an investment. “They have a vision for the future and it’s one that makes sense,” he says, “They understand where the world is going.”

2. Clarity and Focus

AjayAgarwalSalesCollider

There is such a thing as too much ambition. It’s not uncommon to meet a startup founder who wants to tell you all about their third, fourth and fifth product ides before they’ve ever even launched their first. 

For Ajay, this is a signal that the founder lacks the focus necessary to use their VC money in the most efficient manner. “You need to have focus because you have limited resources,” he says, “If product number one doesn’t have momentum, don’t spread yourself thin.”

He suggests that founders hunker down and work to make one product successful before they start thinking about anything else. “The best companies we see at an early stage are incredibly focused,” he explains, “If you feel like that first product is on autopilot and the machine is just cranking, then that gives you the luxury to think about product number two.”

3. Momentum

Of course, all VC want to see that there’s an opportunity for them to make a profit. The best way to prove to them that you can make them some money is to show them that you’re already gaining some traction in your vertical. 

But how much traction do they actually want to see? According to Ajay, it depends on the company. 

Explaining that many venture capitalists use $1M ARR as a benchmark, he adds, “but if a company is selling to large enterprises, you might have one customer pay you a million dollars. That’s not enough data points for us.”

Instead, Ajay wants to see data points that signify constant growth. “There needs to be some evidence of a product-market fit,” he says, “That could mean 100 transactions of a smaller nature, a half-dozen transactions of a larger nature…something to show that there’s some repeatability there.”

Christopher Zacher