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How VCs Evaluate Startups: An Insider's Framework

Scoring rubrics, red flags, and what actually matters at each stage — informed by 100+ deal screenings.

18 min read Playbook

Introduction

Having screened 100+ deep-tech and digital infrastructure opportunities, I have developed a clear framework for how institutional investors evaluate startups. This guide reveals the actual criteria used in investment decisions.

The Evaluation Framework

Stage 1: Initial Screen (30 seconds)

VCs see hundreds of decks per week. The initial screen is brutal:

  • Is the market large enough? (€1B+ TAM for institutional VC)
  • Is the team credible? (relevant domain expertise)
  • Is there evidence of traction? (any signal of product-market pull)

    • Stage 2: Deep Dive (2–4 hours)

    1. Market (25% weight)

  • Market size and growth rate
  • Timing: Why now?
  • Regulatory tailwinds or headwinds
  • Competitive intensity

    • 2. Team (30% weight)

  • Founder-market fit: Why is THIS team building THIS product?
  • Technical depth: Can they actually build what they claim?
  • Execution evidence: What have they shipped?
  • Resilience signals: Have they navigated adversity?

    • 3. Product (20% weight)

  • Technical differentiation and defensibility
  • Product-market fit evidence
  • Technical architecture scalability

    • 4. Business Model (15% weight)

  • Unit economics (even if early-stage projections)
  • Pricing strategy and willingness to pay
  • Path to profitability

    • 5. Deal Dynamics (10% weight)

  • Valuation reasonableness
  • Cap table cleanliness
  • Round structure and syndicate quality

    • Red Flags That Kill Deals

  • Founder conflict: Any sign of co-founder tension
  • Inflated metrics: Presenting GMV as revenue
  • No customer evidence: Even at seed, LOIs matter
  • Cap table issues: Dead equity, excessive advisor shares
  • Market delusion: Claiming niche markets are €50B opportunities
  • Technical risk denial: Not acknowledging genuine challenges

    • What Changes by Stage

    Pre-Seed

  • 90% team, 10% idea
  • Looking for: exceptional founders with a credible insight

    • Seed

  • 50% team, 30% product, 20% market
  • Looking for: early product with initial customer signal

    • Series A

  • 30% team, 30% product, 30% traction, 10% market
  • Required: €500K–€2M ARR with strong growth and retention

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