What do Seed Investors care about more than revenue?


I’ve heard the same confusion from founders over and over again when it comes to raising their Seed round – “why are investors passing, it feels like I have everything they’re looking for?” In many cases these founders have what they think investors are looking for – a functioning product, some early customers, growing revenue, and usually an impressive advisor or two.

So what gives?

More often than not I find these founders have one thing in common – they don’t have a technical co-founder, or in some cases, a co-founder at all. Christoph Janz from Point Nine has done a great job over the years of collecting data about investors, and what they’re looking for in potential investments, and he had some interesting findings when it comes to Seed investors.

Here’s the data along with a bit of analysis from Christoph:

As you can see, most of the seed investors we asked didn’t give very high ratings for Product/Market Fit, paying customers and revenue. Founders with a proven track record are somewhat important to most seed investors, but the highest rating by far got the strong technical co-founder. It looks like most seed investors are willing to take a large — maybe surprisingly large — degree of market risk (as in, will the dogs eat the dog food); but they want to minimize the amount of tech risk (as in, can the team produce the dog food). For what it’s worth, a strong tech co-founder is a must-have for us at Point Nine, too.

(Source – Point Nine)

In the early days of building your product, investors want to know that someone on the founding team understands how the product is being built. Outsourcing all of your development to offshore developers and hoping they will build a robust product is more of a pipe dream than a reality.

I’ve seen a number of cases where a very sharp founder who is an expert in their field tries to go it alone. They can pitch well, they understand the market, they know what they want to build, but managing developers and getting their product to where it needs to be ends up becoming an impossible struggle.

If you have outsourced your engineering, you are now out of business. Good luck in getting the contractor to do the work over the weekend, while they are now moved on to some other contract with its own deadlines. Good luck in even understanding whether the quote you are now receiving for the overnight turnaround of some priority is a good deal, or whether you are being ripped off because you don’t understand the costs of manufacturing or the technology stack your service is built on top of. Good luck in not having so many of these unexpected events that your business is continuously being bled by your contractor for the endless stream of “change orders”.

Investors don’t want to count on your good luck. No-one likes to invest in companies that don’t own or control their intellectual property. You can’t outsource your core competencies.

(Source – SOSV Accelerator)

So if you’re out there pitching your heart out and you feel like you have a product market fit and growing revenue but investors just aren’t biting, you now know what you might be missing. Of course, I know finding a technical co-founder isn’t something you can just put on your to-do list and check off at the end of the week.

If you’re interested in learning more about how to find a technical co-founder, here are some resources to help get the process started:

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