Fundraising
What Investors Look for in a Startup
What early-stage investors really look for: traction, team, and a model that scales. It's about conviction, not just your deck.
June 27, 2025
Venture capital (VC) is often seen as the engine behind some of the world’s fastest-growing startups. While not suitable for every business, it remains a critical source of funding for founders building high-growth, scalable ventures. As your company moves beyond angel rounds and begins to seek more significant investment, understanding how venture capital works can make the difference between a successful raise and a frustrating dead end. Find out what startup founders need to know about the role of venture capital in early-stage fundraising.
What Is a Venture Capital Investor?
At its core, venture capital is institutional funding provided to high-potential startups in exchange for equity. VC firms raise money from external Limited Partners (LPs), such as pension funds, corporates or family offices, and deploy that capital into startups aiming to achieve outsized returns. Their focus is typically on seed rounds, Series A and after. Startups that secure VC backing are expected to pursue aggressive growth and a clearly defined exit strategy, usually via acquisition or IPO.
Unlike early-stage angel investors, VC funds bring more than capital. They often offer strategic guidance, sector insight, access to talent and operational support. Many also take board seats, require monthly reporting and help with later-stage fundraising. In return, they expect rapid execution, scaling capability and strong governance from founding teams.
Who Are VCs and Why Do They Invest?
Venture capital firms are composed of investment professionals who manage pooled capital on behalf of their LPs. Their goal is to identify and back a small number of startups capable of returning 10x or more on their investment. Most portfolio companies will fail, so VCs are incentivised to take bold bets on founders with high-potential ideas in large, growing markets.
The investment teams themselves vary. Some are ex-founders or operators with hands-on experience, while others come from finance or consulting backgrounds. In all cases, decisions are highly analytical. Funds apply rigorous diligence to evaluate product-market fit, unit economics, team quality and exit potential.
In the UK, the landscape includes micro VC firms such as Ascension or Episode 1 that focus on early stage deals, as well as larger firms like Balderton Capital, Molten Ventures and LocalGlobe that target growth rounds. Many of the top venture capital firms follow a clear investment thesis, specialising by sector such as fintech, climate tech or software as a service or by company maturity.
When Should Founders Consider VC Investment?
Venture capital is not right for every startup. Founders should consider it only if they are building for speed, scale and a large exit. VCs seek businesses with big markets, defensible models and the potential to grow 10x or more in a relatively short period.
Typically, VC becomes appropriate when raising £500,000 or more at seed or £1 million+ at series A. By this point, founders should have demonstrable traction: early revenue, fast user growth or strong market validation. They should also have the ambition and operational readiness to lead a high-performing venture-scale company. While exact thresholds vary by sector, VCs typically look for clear indicators such as six-figure annual revenue, month-on-month user growth, or enterprise pipeline traction. As a result, founders must know what signals matter to VCs in their specific space.
A common investment journey might look like this: Angels → Seed Funds → Institutional VC → Growth Capital / Private Equity. Venture capitalists will expect founders to operate at pace, hit measurable targets and make decisions that prioritise growth over short-term profitability. Founders who prefer a slower or more sustainable approach may find VC expectations difficult to manage.
How Do VC Investments Work?
Venture capital deals are typically equity-based, with new shares issued and terms set out in a formal term sheet. While some early-stage rounds may use instruments like convertible notes or ASAs, priced equity is standard from seed onwards.
Ticket sizes at the seed stage generally range from £500,000 to £2 million. Series A rounds can reach £10 million or more. The lead investor sets the terms and often takes a board seat. Co-investors may join without direct involvement.
Due diligence is rigorous. VCs review financials, customer traction, cap tables, technology and founder backgrounds. After investing, most expect regular board meetings, reporting and engagement on hiring and growth plans.
Working with leading venture capital firms gives startups access to follow-on funding, new markets and strategic support. Styles vary. Some firms are highly involved while others take a lighter touch.
Pros and Cons of VC Investment
VC funding brings significant advantages, but it also introduces new pressures and trade-offs. Understanding both is essential before proceeding. On the positive side, VC enables access to large amounts of capital, often faster than other funding routes. It provides founders with strategic input from experienced operators, increases startup visibility and improves credibility with future investors or acquirers. Many of the top venture capital firms also support hiring, internationalisation and exit planning.
However, there are also constraints. Founders will give up equity, board control and often some decision-making autonomy. VCs expect rapid growth and will push hard for scale, even when that comes at the cost of operational flexibility. If targets are missed, relationships can become strained. Not all startups are built to absorb this pace or intensity.
In addition, VC funding is not always compatible with mission-driven or capital-efficient models. Founders pursuing slower growth or long-term sustainability may find other routes, such as family offices or revenue-based finance, more appropriate.
Where to Find Top Venture Capital Firms
Identifying the right VC partner is half the battle. Just like many angels, VCs rarely respond to cold outreach. Warm introductions from founders, advisors or intermediaries carry more weight. Many firms filter deal flow through existing networks and trusted partners.
Start by using ThatRound to research fundraising partners who understand the VC space and that can make introductions to those VCs who are right for startups of a specific sector or stage. If researching VCs yourself, read their public investment theses and look for signals of recent deals, active funds or specific mandates. Leading venture capital firms often share portfolio updates or content that reflects their interests. Accelerators and incubators, such as Techstars or Seedcamp, also feed directly into VC pipelines. They help validate a startup’s potential and increase exposure to relevant investors.
For founders without strong investor networks, matched introductions from fundraising services and other partners such as those available through ThatRound can be a powerful entry point. These services allow startups to identify aligned VCs, filter by stage or sector and reach out via intermediaries with established relationships. This is particularly useful when trying to access top venture capital firms that are highly selective in their deal sourcing.
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