What VCs Want: Key Criteria for Early-Stage Investment Decisions

When you’re raising a pre-seed or seed round, investors aren’t just looking at your product or market—they’re betting on you.

At our recent State of Pre-Seed & Seed VC panel, investors made one thing clear: At the earliest stages, the founding team is the single most important factor in an investment decision. While traction, product, and market matter, the ability of the team to execute is what ultimately drives conviction.

So, what exactly are VCs evaluating? And how can founders position themselves for success? Here’s what you need to know.

1. The Four Pillars of Early-Stage Investment Decisions

Kelly Mak, Principal at Workbench, outlined the four core criteria that investors use to evaluate early-stage startups:

✅ Team – The founder’s lived experience, grit, and resilience. Investors want to know: Do you have the expertise and determination to navigate challenges?
✅ Product – Proof that your solution solves a real problem. Even if it’s early, does the product resonate with users?
✅ Market – A scalable market opportunity with room for growth. Is this a venture-scale business or a niche play?
✅ Traction – Signals of momentum, whether it’s revenue, customer feedback, or product adoption.

How Does Investment Criteria Differ Between Pre-Seed and Seed?

📌 At pre-seed: Investors lean more heavily on team and market opportunity because early traction is often limited.
📌 At seed: Founders typically need three out of the four pillars—investors expect stronger product development and early traction.

💡 Kelly explained: “For seed-stage companies, we look for three of these four pillars. For pre-seed, we can lean more heavily on the strength of the team and market opportunity.”

Key takeaway: If you’re a pre-seed founder without significant traction yet, focus on showcasing your team’s experience, resilience, and unique insight into the market.

2. Why Your Team Matters More Than Anything

While product-market fit is crucial, at the earliest stages, it’s all about founder-market fit. Investors want to back teams who deeply understand the problem they’re solving.

📌 Domain expertise matters – Founders who have lived the problem they’re solving have an edge.
📌 Execution ability is critical – Can you take feedback, iterate, and execute efficiently?
📌 Resilience is a must – Startups will face setbacks. Investors want founders who can adapt and push forward.

💡 Kelly emphasized: “We back founders who’ve lived the problem they’re solving.”

How to Showcase Founder Strength to Investors

✔ Tell a compelling personal story – Why are you uniquely qualified to solve this problem? What insights do you have that others don’t?
✔ Demonstrate adaptability – Share examples of how you’ve navigated challenges and iterated on your business.
✔ Show leadership skills – Investors assess not just your ability to build a product, but your potential to lead a growing company.

💡 Brian Hollins from Collide Capital added: “We also spend time with executive team members to assess leadership dynamics and the ability to scale a business.”

Key takeaway: Investors bet on founders first. Make sure you clearly communicate why you—and your team—are the right people to build this business.

3. How do you Prove That Your Product Solves a Real Problem?

At pre-seed and seed, customer validation plays a major role in de-risking the investment.

📌 Even a small number of customers can be meaningful. Investors look for evidence that people want what you’re building.
📌 ROI is key. Investors want to understand: Does your product solve a pain point that customers are willing to pay for?
📌 Market pull matters more than hype. The best early-stage startups aren’t just “cool tech”—they’re solving urgent, high-value problems.

💡 Brian emphasized: “Even with a small handful of customers, we want to understand the ROI your product delivers.”

How to Strengthen Customer Validation for Investors

✔ Run pilot programs – Even a few engaged early users can provide meaningful insights and testimonials.
✔ Collect strong customer feedback – Document case studies and qualitative feedback to demonstrate problem-solution fit.
✔ Show customer intent – Letters of intent (LOIs), waitlists, or strong engagement metrics can serve as early traction signals.

Key takeaway: If you don’t yet have revenue, use customer validation to prove that your product is solving a real problem.

4. Market Opportunity: Is This a Scalable Business?

Even if you have a strong team and promising early traction, investors need to believe in the long-term market potential.

✔ Big, underserved markets win – Investors look for venture-scale markets (typically $10B+ TAM).
✔ Timing matters – Are you entering the market at the right moment? Is there a clear tailwind?
✔ Competitive differentiation is key – How are you uniquely positioned to win against competitors?

💡 Kelly noted that investors look for markets that are “ripe for disruption and don’t yet have a clear winner.”

How to Prove Market Potential to Investors

✔ Articulate the pain point clearly – What is broken in the market today, and why is your solution needed now?
✔ Show whitespace opportunity – Why is this a big enough market for a venture-scale business?
✔ Differentiate from competitors – Investors need to see how your approach is 10x better than alternatives.

Key takeaway: Investors want to see that your market is big enough to support a venture-scale company and that your solution is uniquely positioned to capture value.

Final Takeaways: What do Early-Stage Investors Want?

✅ Investors bet on founders first. If you don’t have traction yet, prove you have the grit, expertise, and vision to build something big.
✅ Customer validation matters. Even at pre-seed, investors want to see real evidence that your product solves a meaningful problem.
✅ Market size is critical. If the opportunity isn’t big enough, investors won’t be interested—no matter how great the team or product is.
✅ Pre-seed vs. seed expectations differ. At pre-seed, team and market matter most. At seed, investors expect more product and traction.

By focusing on these four pillars—Team, Product, Market, and Traction—you can position yourself as a strong investment opportunity and increase your chances of securing funding.

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Frequently Asked Questions (FAQ)

What do VCs look for in early-stage startups?

At the pre-seed and seed stage, VCs evaluate four key criteria: Team, Product, Market, and Traction. The founding team is often the most critical factor, followed by the size of the market opportunity, the uniqueness of the product, and early traction or customer validation.

Why is the founding team so important to investors?

Early-stage investors are betting on the team’s expertise, resilience, and execution ability. They want founders who deeply understand the problem they’re solving, can iterate quickly, and have the leadership skills to scale a business.

How much traction do I need to raise a pre-seed or seed round?

At pre-seed, traction is less critical—investors focus on the team and market opportunity. At seed, investors expect at least some customer validation, early revenue, or strong engagement metrics. Pilot programs, waitlists, and customer feedback can help demonstrate traction.

What market size do VCs look for?

Venture capitalists prefer large, underserved markets with at least a $10B total addressable market (TAM). If your market is too niche, it may not be attractive to VCs looking for high-growth opportunities.

How can I prove my startup solves a real problem?

Customer validation is key. Investors look for pilot users, customer testimonials, strong engagement metrics, or signed letters of intent (LOIs) to show demand. The best startups solve urgent, high-value problems rather than just building "cool" technology.

How do VCs evaluate pre-seed vs. seed-stage startups?

At the pre-seed stage, investors focus more on the team and market opportunity, with less emphasis on traction. At the seed stage, investors expect at least three out of the four pillars—team, product, market, and traction—to be solid. More proof of product-market fit is required.

How can I stand out to early-stage investors?

Tell a compelling founder story about why you are the right person to build this company. Show adaptability by demonstrating how you've overcome challenges. Provide customer proof, as even a few engaged users can validate your solution. Prove the market opportunity by making it clear why now is the perfect time for your startup.

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