The following is from Ask The VC, where Brad Feld and Jason Mendelson of Foundry Group answer questions related to venture capital investment and startups:
Q: We just started looking for venture funding and I have a question. Why do VC's ask us how our idea came about? Are they looking for an emotional and inspiring story or are they worried that we may have taken our idea from someone else or, what I believe is the case, do they want to see if we were driven by an opening in the market that we observed? Of course, if we are giving our answer in a way that addresses one or two of these issues then you are probably missing the third. Please help!
A: (Jason) Without sounding too glib the answer is "all of the above and maybe more, probably." Your guesses as to why are probably accurate and it, of course depends on to whom you are speaking with. I'll address each of your guesses individually.
1. "Emotionally and Inspiring Story" - Without getting all Sally Struthers-like, it is nice to see engaged and passionate entrepreneurs. Building a successful startup is really, really tough. If you aren't in love with the company going in, it will not turn out well for you or your investors. That being said, don't put on an act.
2. "Taken Our Idea from someone else" - This is a big one. If you come and pitch a next-generation social networking site and previously worked at Facebook, we are going to have an in-depth discussion. Maybe you didn't steal it, but maybe your former employer will have a claim on the intellectual property developed while you were employed.
3. "Driven by a new market" - This also might be part of the question. Whatever VC you speak to, you should know more about your market than they do. I, personally, ask many questions and rely on them as part of my education. Maybe you really have found an "unscratched itch."
One other potential reason is to see how you sell the vision and product. You are going to get this question often from potential customers and this is a way to see you sell and see how efficiently you can answer a potentially complicated question.
Or, perhaps it is just a trite icebreaker and the VCs are just asking you this so they'll have time to answer emails on their blackberry while you wax poetically.
Continue reading below
First and foremost there is passion. How familiar are you with the problem you're trying to solve? Were you once a victim of the problem yourself? What made you so excited about the opportunity for a solution that you're willing to dedicate such a big part of your life and your sanity to finding it?
For example:
Are you starting a site to connect solar installation contractors to consumers because you had trouble finding good resources yourself? and then talked with others on both sides to determine that your problem was common, and that you'd like it solved because you've always been environmentally conscious and an expert at building systems and this is an incredilbe opportunity to combine the two?
Or have you just come from the shipping business and heard from a friend that lead-generation businesses are hot and solar power is hot, so combining the two must be really, really hot?
VCs can sniff out a lack of true passion from a mile away. Asking the entrepreneur the "tell me about the genesis of the idea" question helps settle that issue almost immediately.