Startups that get funded: Lessons learned

Over the past 5 years, I’ve had the opportunity to evaluate more than 500 startups around the world as part of one of the best global angel investor networks, Keiretsu Forum (as identified by the Pitchbook rankings), and also as a part of one of the largest corporate houses in India and globally. The following blog highlights the differences I noticed between startups that get funded and those that don’t. 

Startups that get funded
Startups that get funded

There are some startups (very few though) where investors struggle to get equity due to higher demand.

At the same time, there are other startups (a large number) where the founders struggle to raise funds.   Either they are never able to raise funds or there is so much rejection out there.

Here are a couple of recent real-life experiences worth sharing.

Startup 1  – A healthcare startup in the post-pandemic world got such an overwhelming response from investors, the founder had to go back to the board requesting an increase in the size of the funding round. 

Here are some of the plausible reasons for such a good investor response – innovative and a “must-have” product, excellent early revenue traction, strong founder and team, relatable product, a startup backed by a world-class institution, and a few other interesting facts.

Startup 2 – A marketing tech startup that struggled to get investor interest after years of work and pitching. 

Plausible reasons –  lack of clear edge or differentiation, very strong competition,  a “good to have” (and not a  “must-have” solution),  services play with the complex sales cycle, Inexperienced team, and few other gaps that were there. 

Unfortunately, this type makes up most of the startups that do not get funded. 

It is not that the investors do not want to invest or there is a lack of liquidity in the marketplace. 

The issue is finding those high-quality startups that will satisfy the investment criteria/thesis. 

Steve Blank ( explains typical VC math really well as follows.

“If a VC invests in ten early-stage startups, on average, five will fail, three will return capital, and one or two will be “winners” and make most of the money for the VC fund.

A minimum ‘respectable’ return for a VC fund is 20% per year, so a ten-year VC fund needs to return six times (6x) their investment.

This means that those two winner investments have to make a 30x return to provide the venture capital fund a 20% compound return.

That is just to generate a minimum respectable return.

Angel investors do not have limited partners, and often invest for reasons other than just for financial gain (e.g., helping pioneers succeed) and so the returns they’re looking for may be lower.”

Even savvy angel investors understand the VC math around building a good portfolio quite well. 

Everyone has to pick and choose to decide which are the startups they are going to back and which ones they are not. 

Having closely evaluated more than 500+ global early-stage ventures (post-seed, pre-series A and series A and B) at an angel investor network, here are some of the key factors that work in favour of so-called “investible” startups. 

  • The business model has to be scalable in order to generate higher returns while compensating for the higher risks associated with early-stage investing.
  • The unit economics should be positive or at least there has to be a roadmap to make it positive over time.
  • While the debate between growth and scale vs profitability is still open, the path to profitability over time is important for a large number of investors. If not profitability,  the ability to raise the next round of funding at a higher valuation is definitely on the minds of the investors. 
  • Are founders clear about the exit strategy for the investors (strategic buyout or listing in public markets or staying private while creating a lot more value)?  It definitely helps to know if there is clear visibility over 5 to 7 years or a  little more. 
  • 10X+ return potential for early-stage VCs (seed to series A) in order to compensate for the high risk and losses from the other startups in the portfolio.
  • Clean cap table without too many investors or various conflicting interests between lead/institutional investor groups.
  • Good and clean deal terms with fair valuation and transparent legal and shareholding structure are necessary as well.
  • An experienced, mature, and reasonable founding team, preferably serial entrepreneurs and not the lone wolves.
  • A realistic business plan and financial projections (compared with other similar success stories).
  • Product market fit and customer traction with a sizable addressable market. 
  • Clear differentiation with the right to win. A strong moat guarding the business in the form of tech, patents, sales, and distribution control.   This is very well explained by legendary investor and entrepreneur Peter Thiel in his book  “Zero to one: notes on startups or how to build the future”.
  • And there will be other considerations subject to specific startup opportunity that is being evaluated.

While there is no one size fits all and there are no rules in the startup world (rules are meant to be broken), it definitely helps to follow the above-mentioned criteria/guidelines, in order to avoid dumb mistakes both by the founders and investors. 

Inversely, early-stage ventures that struggle to get funding possibly do not satisfy one or many of the above-mentioned criteria. 

While raising funds from investors at different stages of the startup journey has significant benefits, the money raised from customers (revenues) is also one of the better ways to grow your startup. 

This is part 3 of the 3 part series on “Lessons learned from evaluating 500+ global early-stage ventures”. Read part 1 and part 2 here.

About the author: Mahesh Dumbre MBA 2011 closely works with entrepreneurs, investors, and executives around the world, helping them achieve growth potential.  He is an ex-Tata Group executive who enjoyed building businesses globally (17 years in 8 countries across 11 industries, 80+ million USD value addition) as well as teaching and writing. He can be reached at

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