Have you ever been to a conference where selected entrepreneurs are invited to present their ideas to a panel of investors who then critique their chances of getting funded? If not, then you've really missed out--these meetings are probably one of the best ways aspiring entrepreneurs can get a glimpse of what professional investors are looking for in what they call a "fundable company."

Recently, the Software Council of Southern California asked if I'd like to attend their event, VentureNet, to see what the latest trends were. I eagerly accepted, but my interest was not so much in what was going on at the stage level, but in picking the brains of the professional investors to see what they'd say "behind the scenes." Now, before I share what I learned, let me just make a few qualifying statements:

  1. Every professional investor has a slightly different perspective on what's important. Yes, there are some things we all seem to emphasize, but our differences can be extensive. Thus, this article represents the opinions of just the particular cross-section I happened to interview on this one occasion.
  2. The individuals I interviewed were very candid and, to protect them from being "profiled" with any one statement, no direct quotes will be made.

The professional investors offering opinions from which this article was extracted include: David Cremin, managing director of DFJ Frontier; Michael Song, a partner with Rustic Canyon; Bill Collins, managing partner of Publex Ventures; and Robert Kibble, managing partner of Mission Ventures. Some additional comments and insights were also provided by Jon Kraft, chair of the Software Council of Southern California.

So what do these gentlemen prefer to see in a company before they get excited enough to write a check? What, if anything, has changed from what they used to look for during the dotcom craziness of the late 90s?

Here's what they said is important now:

Seasoning. They're looking for more experienced, older entrepreneurs who have "been there, done that." The time of investing in the 19-year old kid who's a tech-genius isn't necessarily gone, but the kid had better be able to find an older, seasoned executive to join his team.

Customers. Contrary to putting the emphasis on the team or the revenue numbers, there seemed to be a new emphasis on the customer:

  • What compels them to buy this product or service?
  • What problems does this product or service solve? Why is it better than the alternatives?
  • Why is it worth the price?
  • Does it compel you to tell others about your experience?
  • Are your customers asking if they can invest in your company?

Team. The team is still an important part of the equation, but the entrepreneur is just as important. Here's what the investors are looking for in both:

  • Passion: The entrepreneur must demonstrate a contagious excitement about their vision for the company.
  • Tenacity: The entrepreneur must prove they have the stamina and willpower to stay with their vision through thick and thin.
  • Flexibility: The entrepreneur must be willing to reevaluate and refocus their plans when things don't work out as anticipated.
  • Commitment: The entrepreneur must be willing to invest enough of their own money into this project to convince investors they're serious.
  • Teamwork: The entrepreneur's team must prove they can work effectively together.
  • Coachability: The entrepreneur and their team must be coachable. No team knows everything they need to know to succeed.
  • Knowledge: Investors prefer to back teams that really know their market by having backgrounds that are rich and impressive in the market niche for which the company is engaged.

Opportunity. Investors want big ideas. Ideas that can change the world. Ideas that change our behavior, culture or way of thinking. Ideas that can build $100-million-size companies. Anything less is too speculative. The risks of investing in a company are so great--and the chances of a reward so small--that investors can't afford to bet on opportunities that won't surely have huge payoffs. And one of the biggest problems when addressing opportunity is "Am I too early?" Investing in a huge opportunity five years before the market will recognize and embrace it is a very frustrating thing. Not only will you lose your investment, you'll have to suffer the extreme frustration of watching someone else make a lot of money on the foundation you helped build.

Business Model. Will the numbers map out? In other words, once someone takes a sharp pencil and starts tracing where every revenue dollar comes from and then seriously challenges every expense it'll take to generate that revenue dollar, will you have:

  • a profitable model?
  • a repeatable model?
  • an expandable model?
  • a predictable model?
  • a defensible model?

Many an entrepreneur fails because they don't know how to do this type of exercise with a "real world" view.

Well, there you have it: the latest and deepest thinking from a sample of professional investors. How do you and your company match up? If you were honest and found areas that were lacking, please find someone who can help you fix them before you approach anyone to invest. Your extra investment of time will significantly improve your chances for funding.

Jim Casparie is the founder and CEO of The Venture Alliance a national firm based in Irvine, California, that's dedicated to getting companies funded.