“In the world of investing, what you really want is to create a great company, not just to chase returns.” — Larry Fink.

During a recent trip to Barbados, I had an opportunity to have Caribbean founders pitch their businesses to me with the expressed desire of being granted an equity investment. Asks ranged from US$50,000 to US$600,000, for varying percentages of ownership in their companies. I’m a fan of all things entrepreneurial, and it was great to see the spirit alive and well in entrepreneurs across the region. However, it also revealed a common theme: many founders struggle to grasp what truly matters to those they seek to be partners along their journeys. As I listened to various pitches, it became clear that while passion and vision are essential, they alone aren’t enough to pique my interest. Behind every investment decision lies a deeper, multi-faceted evaluation process.

In the dynamic world of venture capital, where billions are poured into start-ups poised to disrupt entire industries, finding that elusive unicorn requires more than a great idea. In fact, Crunchbase reports that during Q3 of 2024 alone, global venture capital investment reached approximately $66.5 billion, with sectors such as AI attracting nearly $19 billion of that total. Early-stage companies pulled in around $24.7 billion despite some fluctuations, reflecting continued investor confidence in innovation. It demands a comprehensive assessment that melds data, insights, and key elements. So, let’s explore these critical factors that can make or break a deal, shedding light on what investors seek when considering a promising venture.

1. Founding Team and Leadership

When I evaluate a start-up, the founding team is often at the top of my list. In truth, someone once said: “We invest in people, not just ideas.” Data from the Kauffman Foundation reinforces this, showing that 63 per cent of venture capitalists prioritise the founding team in their investment decisions. I look for founders who are not only visionaries, but also resilient and adaptable — individuals capable of pivoting when challenges arise.

A successful team combines technical expertise, industry knowledge, and business acumen. Complementary skills among founders are also crucial. For instance, if one founder excels in technology but lacks in business development, partnering with someone who fills that gap can significantly enhance the start-up’s potential. Grit is critical in founders. It’s the ability to navigate obstacles and keep pushing the business forward. Many companies fail not due to poor ideas, but due to poor execution or internal conflicts.

However, it’s not just about resilience; can the team mitigate risks strategically? Having a vision is one thing, but without a robust risk management strategy, even the most promising companies can falter. Founders must demonstrate that they’re not only prepared for success but also ready for potential setbacks. Investors like me want to see that the team has structured growth plans that account for both the highs and inevitable lows of the entrepreneurial journey.

2. Product-Market Fit

A brilliant idea means little if there’s no market demand. According to a report by CB Insights, 42 per cent of companies fail because there’s no market need for their product. This statistic is always on my mind, which is why I place immense importance on product-market fit. I want to see clear evidence that the start-up’s product addresses a real pain point for customers and that there’s a sizable, addressable market. In short, does anyone want what you are selling?

Achieving product-market fit doesn’t necessarily require millions of customers right away. I tend to look for early signs that the product or service resonates with a specific customer segment, indicated by user engagement, retention rates, and customer feedback. Even a strong indication of demand in niche markets can signal the potential for future scalability.

Moreover, today’s competitive landscape is increasingly digital. Companies must not only solve a problem but also be positioned to thrive in the digital economy. Founders who can demonstrate their product’s digital readiness and capacity to evolve alongside digital trends often stand out.

3. Scalability and Market Size

While product-market fit is essential, scalability is where the real magic happens. We are drawn to firms that not only have a great product but also possess the potential for exponential growth. A start-up may offer a solution that meets the needs of a small market, but if that market isn’t large enough, it’s unlikely to deliver the returns I’m seeking.

According to a report from McKinsey & Company, investors typically prefer targeting companies operating in markets with a Total Addressable Market (TAM) of at least one billion. In the Caribbean, a market of approximately 28 million, we can be led to think small, but always build globally, even when serving locally. It’s crucial to consider not just the current size of the market but its potential for future growth. It’s important to evaluate whether the business model can scale efficiently — whether through geographic expansion, product extensions, or customer acquisition strategies.

Businesses that outline a clear path to scaling — whether by entering new markets, upselling to existing customers, or automating processes are great prospects. Capital efficiency is also important. This capability is vital for sustaining long-term growth and attracting further investment down the line. I’ve personally bootstrapped a few companies. Fiscal prudence is key to sustainable growth.

4. Competitive Advantage

In any promising market, your secret sauce is crucial. Competition is inevitable, and as an investor, I want to see that a startup has a defensible position. This is where competitive advantage comes into play. A unique value proposition, proprietary technology, network effects, or significant barriers to entry can create what Warren Buffet refers to as a “moat” — a protective edge that safeguards the company from being overtaken by competitors.

Research from the National Venture Capital Association indicates that start-ups with a clearly defined and sustainable competitive advantage are significantly more likely to secure funding. For example, data shows that 70 per cent of venture-backed start-ups that successfully scale have a strong competitive differentiation in their market.

I’m particularly wary of businesses that could be easily replicated or undercut by larger players. Therefore, I seek out companies that offer something genuinely distinctive and hard to replicate — whether that’s through intellectual property, a groundbreaking product, or exclusive partnerships. Moreover, sustainability is becoming a key component of competitive advantage. Investors are increasingly interested in start-ups that not only have a strong market position but also integrate sustainable practices into their business model. This long-term thinking adds layers of defensibility and resilience, crucial in today’s venture capital landscape.

5. Financial Health

While some early-stage start-ups aren’t expected to be profitable, financial health is still a crucial factor in investment decisions. I want to see a solid financial model that demonstrates how the company will eventually become profitable. One key metric is unit economics — essentially, how much it costs to acquire a customer versus how much revenue that customer generates over time. Healthy unit economics suggest that scaling the business will lead to increased profitability, whereas poor unit economics can indicate that the business may struggle to sustain itself in the long run.

Another important aspect is the start-up’s “runway,” or how long it can operate before needing additional funding. Companies that have enough runway to reach critical milestones, without having to constantly seek capital infusions are prime candidates for investment. According to the Harvard Business Review, start-ups that demonstrate careful financial planning, sustainability practices, and a clear path to profitability are more likely to attract venture capital.

In addition to these financial fundamentals, I pay close attention to a start-up’s approach to risk management. Start-ups must show that they are not only aware of potential risks but have concrete plans to mitigate them. This includes managing cash flow wisely, planning for economic downturns, and ensuring that financial growth is sustainable over time. A well-thought-out risk management plan is often a critical component of financial health that separates well-prepared start-ups from the rest.

6. Traction and Milestones

Investors are often attracted to momentum. Traction — whether it’s measured in terms of revenue growth, user adoption, partnerships, or media coverage — signals that the start-up is on an upward trajectory. As Y Combinator founder Paul Graham once said, “Start-ups take off because the founders make them take off.” We want to see evidence of this in the form of milestones that have been reached, such as beta users, strategic partnerships, or initial revenue growth.

In today’s data-driven world, investors are looking at more than just top-line growth. We are scrutinising key performance indicators (KPIs) that reflect deeper aspects of the business, such as customer retention, acquisition costs, and lifetime value. Companies that show strong digital engagement, sustainable growth through online channels, and high customer retention rates are seen as more promising since they suggest long-term value creation. The ability to integrate digital metrics with traditional KPIs further enhances the likelihood of success in an increasingly digital-first economy.

Final Thoughts

The evaluation process for venture capital investment is both an art and a science. We look for a combination of factors that suggest a start-up has the potential to grow rapidly, sustain competitive pressures, and ultimately deliver outsized returns. It’s not just about the idea — it’s about execution, market dynamics, scalability, and the strength of the founding team.

For entrepreneurs seeking venture capital, understanding these key criteria can help them position their companies more effectively. The venture capital ecosystem is competitive, but by focusing on building a strong team, demonstrating product-market fit, integrating digital strategies, and showcasing clear paths to scalability, start-ups can increase their chances of securing that crucial investment to drive them to the next stage of growth.

About Kemal Brown

Kemal Brown is the visionary founder and CEO of Digita Ventures, a dynamic venture capital firm focused on driving digital innovation across diverse industries. Known for his forward-thinking leadership and deep expertise in digital transformation, Brown has a proven track record of identifying and nurturing high-potential start-ups, guiding them from inception to growth. With a passion for technology and entrepreneurship, Brown is dedicated to fostering the next generation of disruptive companies that will shape the future of business. Digita Ventures is a subsidiary of the Digita Global Group of Companies.

About Digita Ventures

Digita Ventures is a dynamic venture capital firm focused on empowering start-ups that are driving digital transformation across industries. With a strong emphasis on innovation, growth, and sustainability, Digita Ventures partners with visionary entrepreneurs to scale disruptive technologies and solutions. Through strategic investment and hands-on support, Digita Ventures helps companies navigate the complexities of today’s digital economy, delivering long-term value for both investors and portfolio companies. For more information, visit www.digitaventures.com.