The 10 Commandments of Venture Capital: Rules Every Successful Investor Lives By

enture capital is often seen as a catalyst of innovations, providing seed money for startups with a vision to solve unaddressed problems and needs. However, despite all the success stories, it remains a risky business.

In 2024 alone, it is estimated that 75% of all VC-funded startups will fail to deliver returns. As every successful VC knows, surviving in this field requires more than luck or capital access. It requires following a set of principles—commandments, if you will—that can spell the difference between success and failure.

Here are the “10 Commandments” successful investors live by (and that startup founders need to know about).

1. Not All Startups Need a VC

According to Crunchbase data, 2023 saw the lowest startup funding since 2018, from $462 billion in 2022 to $285 billion.

With multiple businesses competing for limited funding, when it comes to VC investments, not all startups are created equal and not everyone is ripe for VC funding.

VCs are typically looking for companies that have the potential to scale rapidly and dominate markets. This often means that businesses with slower growth models or more localized objectives may not be a good fit.

Take the case of Patagonia, a well-known outdoor clothing brand. Founder Yvon Chouinard deliberately avoided VC funding because he wanted to focus on environmental sustainability and remain privately owned, free from the pressure of outside investors. VC funding is best suited for startups aiming to disrupt industries at a global level—think Airbnb or SpaceX, both of which had world-changing ambitions from the start.

2. Collaboration and Adding Value

VC investments are a long-term game. A VC should always be able to provide access to key industry networks, strategic partnerships, and mentorship, which are just as valuable as the capital they provide.

On the other hand, when seeking venture capital, founders must remember that VCs bring much more than just financial backing to the table. For many startups, particularly those looking to break into competitive or highly specialized markets, leveraging a VC’s established relationships and expertise can be the difference between success and stagnation.

For example, Andreessen Horowitz is renowned not only for its investments but also for offering extensive operational support and industry connections to its portfolio companies. Startups backed by such firms gain access to a network of seasoned professionals, including top-tier marketers, product designers, and technical experts, all of whom can provide critical guidance that goes far beyond just financial advice.

3. Embracing Risk in Support of Innovation

The most experienced venture capitalists evaluate businesses with a pragmatic approach and are 100% aware that there are risks involved in innovation.

Every startup dreams of becoming the next unicorn and it’s easy for founders to see their ideas through rose-colored glasses promising big returns to venture capitalists. More than visions of overnight success, VCs need to know whether founders have mapped out all the risks involved and have planned contingencies and mitigating measures if and when these situations arise.

4. Big Problem Equals Big Potential

The biggest returns come from companies that disrupt industries rather than those making minor improvements. Venture capitalists try to spot businesses with the potential to radically change the way people live or work.

VCs evaluate startups on whether they are solving a major problem in a completely new way, or just iterating on an existing solution. They look for "moonshot" ideas that can create entirely new markets.

5. Relationship Matters

The right idea in the hands of people who don’t have a strong business rapport is a bad investment for VCs.

The cohesiveness of the founding team is equally important to investors as the idea itself. The cliche “united we stand divided we fall” is important in early-stage investments when the smallest crack in the organization can cause catastrophic ripples.

Even if the original concept fails, a united startup will pivot and find a way to succeed. Many top VCs look for teams with proven track records in collaboration, cohesive problem-solving, and the ability to resolve internal conflicts.

6. No CFO, No Deal

Many VCs expect startups raising a Series A round to have a CFO. When starting a business, many entrepreneurs get caught up in the hustle and forget about the critical role of a CFO. It’s easy to think, “I’ll wait until we have steady revenue to hire a CFO.”

A CFO brings critical financial expertise that extends far beyond bookkeeping. They provide a strategic framework for financial planning and help shape the company’s profit trajectory from Day 0. For venture capitalists, this is essential. A CFO ensures that the startup is not just tracking its financial performance, but actively managing and optimizing it to drive growth.

Likewise, having a skilled CFO on the founding team signals to investors that the company is serious about its financial health and prospects. It shows a commitment to governance, transparency, and strategic planning—qualities that are highly attractive to investors.

7. Those Who See the Future, Win

While being ahead of the curve is essential, blindly chasing trends can be risky. Smart VCs keep a pulse on emerging markets but also understand which ones have staying power. Identifying disruptive technologies and understanding where consumer demand is headed allows investors to make educated bets.

For example, Benchmark Capital’s early investment in Uber wasn’t just a guess—it was based on understanding the long-term potential of ride-sharing to shift consumer behavior towards on-demand services, and the global clamor to reduce the transportation sector’s carbon footprint.

8. Due Diligence Is a Must

At the end of the day, VCs want to make money. They look for a structured sales strategy—fully mapped out customer avatars, understanding pain points, delivering value, customer loyalty cultivation, and demand generation—to gauge whether they can multiply their capital.

Founders often have the research and development part figured out, but several startups miss out on VC funding opportunities to due a lack of monetization structure.

For instance, Shopify’s journey highlights the importance of early sales success. Before becoming the e-commerce giant it is today, Shopify started as a small online snowboard shop. Founder Tobias Lütke quickly realized that robust sales would be the key to scaling, and by building an easy-to-use platform that solved the pain points of small business owners, Shopify attracted early customers.

This sales growth helped them secure VC backing from firms like Bessemer Venture Partners, which led to their explosive growth in the e-commerce space.

9. Competitor Knowledge is Power

VCs look for founders who demonstrate market awareness. They’re more likely to back companies that not only know their strengths but are also prepared to adapt and respond to other businesses that are competing for the same market share.

A deep understanding of competition allows startups to identify gaps in the market, create value, and position themselves effectively for VC funding.

By closely monitoring rivals, startups can uncover critical insights, such as gaps in the market or unmet customer needs, that they can address to gain a competitive edge. It’s not just about staying aware of what others are doing—it’s about recognizing how a startup’s product or service can stand out.

10. Thou Shall Exit When It’s Time

VCs are always thinking about exits. Whether it’s an acquisition or an IPO, founders should have a clear idea of where their company is headed and when VCs can expect to see a return.

The best investors set clear benchmarks for success and are prepared to exit when the company reaches them, maximizing returns while minimizing risks. Founders need to be realistic about timelines and milestones—a balance between long-term growth and calculated risk—and show a clear roadmap on how investors can eventually cash out.

Think Like A VC

Founders and VCs of the same feather, go in business together.

The VC-founder dynamic is complex given the stakes involved. When done right, it becomes a symbiosis and the result is mutually profitable.

Mastering these 10 commandments of venture capital isn't just about following a formula—it's about evolving with the market, empowering founders, and making strategic decisions that shape the future.

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