matt_penneycardI’m often asked how we decide whether or not to invest in a start-up. As the Head of Downing Ventures, I get several email enquiries from companies looking for us to help them every day, and we do our best to answer them all.

However, this takes a lot of time, and I don’t have a lot of time to study each proposal, which means that to be taken seriously you need to stand out. And you need to answer the questions I need to know about your business as to whether it will be a good fit for us (see below).

To do that, you need to do your research. This means spending some time looking at who we have invested in in the past and tailoring your email to show why you would fit into our portfolio. It’s all online. It’s easy to find.

Treat your proposal as a proposal

Sending a blanket email out to a bunch of VCs rarely works. Doing the research can save you wasted time and effort too, by letting you choose a VC which matches the kind of business you do. We here at Downing Ventures view the relationship we have with the companies we invest in as a marriage. We wouldn’t choose a spouse based on a one-paragraph email, and you shouldn’t choose your spouse based on a quick look at our website.


Funding received! Some of the South West tech companies
Downing Ventures has already invested in

If you’ve done the research, and you are happy your business would be a good fit (and we would have a happy marriage!), that’s the time to get in touch. And when you do, here are the 7 points we here at Downing need you to cover for us to make our decision on whether to invest in you or not.

By the way, these don’t represent the criteria every VC is looking for, as every VC is different – hence the need to research them – and the process of making our mind up generally takes a few months. I guess there are a myriad of small touch points and “tells” along the way, but I can summarise our decision making process at Downing Ventures by these seven steps:

1. What’s the problem?
What’s the business reason for this start-up?

2. What’s the solution?
What are you doing about it – what’s your response to the problem?

3. What’s the business model?
What’s your revenue model? How have you decided your pricing? What’s your go-to-market strategy?

4. Total Addressable Market?
Every pitch deck we receive has a [$X Billion] Market Size slide. These are almost always taking the market as a whole (Ecommerce, Financial Services, and so on), and asking us to lazily assume that if the start-up can capture [1%] of that market, we’ll have a big business on our hands. We don’t do that. We want to think deeply about what a genuinely addressable market size might be for a particular business. If you’ve done some of that already, so much the better.

5. Value created:
Assuming success, how big a business can be built here, how much equity value is created?

6. Exit:
I truly believe we are a helpful investor, and good folk to work with, but never forget that the number one reason we’re making an investment is to make money. So, who are we all going to be riding off into the sunset with in 3-5 years time, Facebook? Google? Microsoft?

7. Execution:
People, people, people. Someone, or rather some people, are going to have to do all of this stuff. We calculate that the people are about 80% of the overall determinant of success in a start-up. The balance is tech/product, and market timing. Put another way, it’s ALL about the team, and that’s a cliche for a reason. This final point is where we spend the most time.

That’s a very high level summary, and misses out some detail, but hopefully it gives you some insight into the black box of venture capital. I should also add a thought about what its like to work with a VC. There are horror stories out there about start-ups getting screwed over, just as there are in any competitive industry you can think of. I often advise entrepreneurs that not every business needs venture capital.

“It’s worth asking yourself what you truly want out of this business”


That might sound obvious but, its worth asking yourself what you truly want out of this business. You don’t need to share it with anyone, but it makes a big difference whether you want to make $1 Billion, change the world for good, have some fun with your mates, or just pay off your student loans. None of these is a more worthy reason for being in business than any other, but taking on an equity investment partner means you’re going to have to seek an exit at some point, so best to consider all of that up front, and be in an aligned and open partnership.

One last thing: if you do decide to raise venture capital, take that shareholder agreement seriously. Like a prenup! You’re getting married, so you’d better learn to trust each other.

Thanks to Matt for taking the time to give us this advice. You can check out our Downing Ventures’ portfolio at, and you can follow Matt on Twitter @Penhelios.

Matt Penneycard