Draft 1 (James)- What VCs Want: How Investors Really Decide Which Startups Get Funded

The Founder’s Guide to Understanding Venture Capital Decision-Making

If youʼve ever wondered why your startup didnʼt get funded — or how to craft a pitch investors actually say yes to — this page is for you.

This is your founder-first guide to understanding how venture capital really works behind the scenes. No jargon, no vague advice — just clear insights into how investors make decisions and what it takes to get a “yes.ˮ

Whether you're a first-time founder or seasoned operator prepping for your next round, this resource is built to sharpen your fundraising approach and help you see your startup the way a VC would.

Before you pitch, What VCs Want helps you get clear on what investors actually need to believe.

What Youʼll Get from Reading This Page

A clear understanding of how venture capital really works — and whether itʼs the right path for your startup

A practical, inside look at how investors assess startups, make decisions, and what signals theyʼre actually looking for during fundraising

Section I: Is VC Even Right for You?

Target keywords: should I raise VC NZ, venture capital vs bootstrapping, raising VC NZ

Topics to cover:

• The VC model: power law, 10x returns, fund-returning logic
• Why many good businesses are a bad fit for VC
• Decision filters: growth pace, outcome size, ownership tradeoffs

Unanswered questions:

• What % of NZ founders raise VC and regret it?
• What realistic outcomes make VC worth it in NZ (vs just surviving)?
• When is VC essential vs optional?

Section II: The One Question Every VC Asks

Month 1 Priority

Feedback from venture capital funds can be disorienting and is often conflicting. This is for two major reasons.

1. Fund strategy and investor composition

Perhaps obvious. But venture funds have different strategies. There are early stage and late stage funds. Some are comfortable writing first cheques - others focus on investing post product market fit. Some firms write a lot of cheques - others operate with more concentration.

Then, within each firm is a collection of individual investors. While decision making typically requires some level of consensus — at the end of the day, you need an individual to bang the table and get excited about making an investment.

So when fund number one encourages you to focus on the NZ market first, while fund number two pushes you to go global from day one. Neither is right or wrong they are just operating within their funds strategy.

How do I learn a fund’s strategy?

1. Look at the companies they back. This is the single best guide on whether your company might fit the brief.
2. Read their investment notes.
1. What language do they use? (”attacking global markets” “life’s work founder” “operating at speed”)
2. What themes come through in their investment thesis? (AI enabled vertical software, consumer marketplace, 1st time founders that have lived a problem, technically dense teams with a product bent…)
3. At what stage do they typically invest? Do they normally lead or participate?
4. Talk to other founders who have been through their end to end investment process.
1. What areas do they focus their diligence?
2. What were their concerns?

Let’s use Blackbird as an example. Over the last fund cycle in New Zealand we invested in pre-seed through to series A rounds - in companies spanning nuclear fusion (OpenStar), HVDC Fast chargers that unlock the grid (Kwetta) through to brand marketing SaaS superstar (Tracksuit), AI powered monitoring services (Watchful) through to an AI unlocked consumer retraining platform (NextWork).

From this we can see Blackbird invests right at the beginning, across the most ambitious technology powered software and hardware businesses.
2. Fund size = Fund Strategy The most important determinant of fund strategy is size. Venture funds have their own set of investors who expect over the course of the 10-12 year fund life a net —return of greater than 3.5x on their money. For funds with standard fees (2% management fees and 20% carry) that translates to returning roughly $5 for every $1 invested. But 5x is no easy feat - particularly considering the power law nature of venture capital returns and the high expected failure rates of early stage companies. — What is a power law distribution? This describes the reality that a very small number of opportunities contribute to the vast majority of value creation. Blackbird’s first fund perfectly expresses this power law dynamic. The fund itself have three billion dollar companies and yet the Canva holding is over 50x more valuable the second most valuable position. In short, venture is not about hit rate and the avoidance of losses - it is more about slugging % and having exposure to the biggest outcomes that more than compensate for the expected failures. —

But what does this to have with you as the founder? These two ideas together translate to the way a fund will think about the size of outcome they need to believe. If they have 20-30 position in a fund a fund will normally expect to have 1 - 2 fund returning outcomes.

Meaning an investment position returns at least a single multiple of the fund. For Blackbird’s freshly minted early stage fund that would translate to a believing in a path to a $400M outcome. This might look like owning 10% of a $4B outcome - by ANZ standards this is a pretty big outcome. Where as for a smaller fund like Outset a fund returning outcome would equate to $40M and so could look something owning 5% of an $800M outcome.

As you can see the difference in fund size can meaningfully alter the types of companies that each fund might pursue.

Quickfire 🚀

What NZ-sized outcomes do excite NZ VCs? There are very few NZ-only opportunities that support an outcome VCs would be excited by. Banking and financial services has seen the most NZ-centric venture investment with the likes of Sharesies, Emerge and Debut focussing primarily on the NZ market. Most other market opportunities will rely on accessing global markets very early in their journey to deliver the slop of growth necessary to deliver $1B+ outcomes in the short 10-12 year fund lives.

How do NZ investors think about exits <$500M?

Most all investors will be over the moon with an $500M exit. By any stretch of the imagination this is a wonderful outcome for all involved.

That said, for a venture fund to deliver top quartile returns a fund of over $50M in size will typically rely on an outcome greater than this in the portfolio.

• What % of their fund do they aim to return from one bet?

Target keywords: return the fund, billion dollar company NZ, venture scale startup

Topics to cover:

• “Can this startup return our fund?” — what that actually means
• Why growth > revenue in early rounds
• Why small markets and service businesses usually get passed over

Unanswered questions:

• What NZ-sized outcomes do excite NZ VCs?
• How do NZ investors think about exits <$500M?
• What % of their fund do they aim to return from one bet?

Section III: How VCs Evaluate Startups

Month 1 Priority

Target keywords: how VCs evaluate startups NZ, startup due diligence NZ, venture capital evaluation criteria

What does a fund returning outcome imply about the businesses we invest in?

Questions we ask ourself.

Market backdrop → compounding growth rates → depth of competition

Team → Speed, life’s work, spikes in the right places

B2B Four

Topics to cover:

Break this into the 6 classic investor filters:

1. Market Size & Urgency – Is the market big, real, and fast-moving?
2. Team – Does the team move fast, show founder-market fit, and execute well?
3. Product/Problem Fit – Is this a painkiller or just a nicer tool?
4. Traction – Can you prove people care (and keep coming back)?
5. Timing – Why is this company right now?
6. Business Model Fit – Does the revenue model match VC expectations?

Unanswered questions:

• Which of these filters carry the most weight in NZ rounds?
• What are the biggest “pass” reasons that aren't obvious from the outside?
• What signals trump revenue in early stage NZ investing?

Section IV: What Traction Really Means, by Sector

Month 1 Priority

Target keywords: VC traction signals NZ, startup traction B2B SaaS NZ, deep tech traction VC

FirstRound PMF

• B2B:
• Design partners
• Beta users
• Paid users
• Expansion + explosion
• Consumer:
• Distribution
• Usage and attention
• Model dependent
• Deep tech:
• Customer discovery
• Bound technical thesis
• Team

Quick fire 🚀

• Do I need customers and revenue?
• What early traction is enough to get a meeting
• How do NZ investors weigh “non-revenue” traction (usage, retention, etc.)?

Topics to cover:

• How to quantify traction beyond MRR
• What early traction is enough to get a meeting

Unanswered questions:

• What minimum traction is expected at seed in NZ per sector?
• How do NZ investors weigh “non-revenue” traction (usage, retention, etc.)?

Section V: Inside a VC’s Funnel — How They Actually Decide

Target keywords: how VCs make decisions NZ, VC investment process NZ, why VCs say no

Topics to cover:

• Overview of a typical VC funnel:

Top → Signals → Partner review → Term sheet

• How most startups die early (before serious DD)
• Reasons VCs pass even when founders think it’s going well

Unanswered questions:

• What % of deals make it from meeting to IC (Investment Committee) in NZ?
• What do partner meetings look like at top NZ/AU funds?
• What happens after a soft yes?

Section VI: What a “VC-Fundable” Pitch Deck Covers

Month 2 Priority

Target keywords: VC pitch deck NZ, investor deck template NZ, venture capital pitch format

Topics to cover:

• What investors expect in your 10–12 slides
• Why most decks fail: too long, unclear, lacking fund-return potential
• Best practices for NZ: cultural tone, storytelling, traction framing
• Counterintuitive advice: show less, explain more

Subsections to recommend:

• Title Slide
• Problem & Solution
• Market Size & GTM
• Traction
• Team
• Competition
• Ask & Use of Funds

Unanswered questions:

• What slide do NZ investors skip first?
• What decks actually got funded recently (and why)?
• What local design/deck support do VCs recommend to founders?

Section VII: Templates & Tools

Target keywords: VC pitch checklist NZ, investor outreach template, startup deck NZ template

Optional add-ons:

• Airtable or Google Sheets investor tracker
• “VC Funnel Map” visual — founder view vs investor view