Inside the real framework investors use to decide which startups scale—and which run out of money
Starting a company can be one of the most rewarding decisions an entrepreneur makes. It is also one of the most unforgiving. While the startup world celebrates bold ideas and innovation, the reality is stark: nearly 7 out of 10 startups shut down because they run out of capital before reaching sustainable revenue.
For many founders—especially first-generation and Latino entrepreneurs—the biggest hurdle isn’t creativity or work ethic. It’s access to financing.
Banks, traditionally the first stop for funding, tend to avoid early-stage startups. They favor predictable cash flow and collateral—two things most startups don’t have. That leaves venture capital (VC), a form of financing designed specifically for high-risk, high-growth companies.
But venture capital is not charity. It follows a strict playbook.
The VC Decision Framework: What Gets a “Yes”
Across the industry, venture capital firms evaluate startups using four core pillars: the team, the market opportunity, the product or technology, and traction. Together, these factors determine whether a company has the potential to deliver venture-level returns—often 10x or more—through an acquisition or IPO.
1. The Team (Often the Deciding Factor)
Investors repeatedly say they invest in people first.
They look for founders with:
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Relevant experience and deep understanding of the problem
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Proven execution skills
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Strong chemistry, resilience, and the ability to adapt under pressure
As Plug and Play principal Luis Llorens has said in public forums, “Great teams learn faster than the market changes.”
2. The Market Opportunity
Even the strongest teams struggle in markets that are too small.
VCs assess:
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Total Addressable Market (TAM): Is this a billion-dollar opportunity?
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Growth potential and global scalability
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Whether the problem being solved is urgent or mission-critical
3. Product and Technology
Incremental improvements rarely attract venture capital.
Instead, investors want:
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A clearly differentiated value proposition
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Scalability without proportional cost increases
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Defensible advantages such as proprietary technology, data, or network effects
4. Traction and Product-Market Fit
Traction reduces risk.
This can include:
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Early customers, revenue, or active users
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Retention and engagement metrics
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Evidence that customers truly need—and stick with—the product
Latino entrepreneurs are launching businesses at record rates in the U.S., yet they receive less than 3% of total venture capital funding, according to data from Crunchbase and Latino Startup Alliance.
Understanding how VCs evaluate startups is not about chasing approval—it’s about building companies that can survive scrutiny, scale sustainably, and compete globally.
In venture capital, ideas open the door.
Execution, market scale, and traction decide who gets funded—and who doesn’t.
