The founder of Puzzle explained what venture capitalists look for in startups
Sasha Orloff, founder and CEO of Puzzle, spoke in an episode of Build Mode about the factors venture capitalists look for when startups are raising funds. As TechCrunch notes, Orloff spoke based on his experience founding companies that have collectively raised over $1 billion.
He identified the founders’ understanding of their business’s actual financial condition as key for investors. Disorganized data, misinterpretation of metrics, or starting a fundraising round only when funds are nearly depleted can weaken a company’s negotiating position, affect its valuation, and even jeopardize its chances of securing a term sheet.
The discussion focused on the financial metrics founders should be familiar with before presenting to venture capital funds: revenue growth and its quality, time to cash burn, margins, sales efficiency, and profitability. They also discussed how investor requirements change as the company progresses from the pre-seed and seed stages to Series A, Series B, and subsequent rounds.
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Orloff cited his own experience, when he nearly lost a term sheet due to an unprepared data room. According to him, a startup’s financial structure, compliance with requirements, and readiness for a comprehensive due diligence process can influence investor confidence and the startup’s valuation.
The episode’s participants also discussed that venture capitalists do not expect perfection from startups, but they do expect founders to have a realistic understanding of the business’s challenges. Other topics included the creation of Puzzle—which Orloff linked to his own difficulties with fundraising and financial management—as well as the potential application of artificial intelligence in accounting and the analysis of startups’ financial health.
