When it comes to evaluating investment opportunities, different investors look at different areas of the businesses. Some investors are more founder-centric, meaning that their decisions are mainly driven by the background of the founders while other investors are more technology-driven - they get excited when companies are building or are based on unique IP. In my case, I get excited when I meet product-centric founders and I love to go through understanding the connection between the products and their users. I like to discuss user workflows, engagement metrics and product strategy. In this article, I discuss some of the factors that investors with a product-centric mindset look for when evaluating opportunities. Special thanks to the contributions of Pietro Bezza from Connect Ventures, Kyle Poyar from OpenView and Carl Fritjofsson from Creandum, who are the most product-centric investors I know.

The criteria is grouped in four different areas: the product-centric founder, the product itself, the GTM approach and the product metrics.

1) The Product-Centric Founder: product-led investors look for opportunities started by founders that are also product-centric.

• These founders are obsessed with building the products that their users love; they want to be embedded in their users’ workflows and make their users’ work easier.
• These founders start by identifying the jobs that users need to do and the workflows they go through to complete the tasks. The product is built to seamlessly fit that workflow.
• These founders are also data-driven; they interview users regularly to identify their needs and to understand their “mental model”, putting user-centricity at the core.
  
• Product-centric founders focus on discovering the right product by building, testing, learning and iterating frequently until they get to a simple product that the majority of users will be able to use without any type of training or onboarding.
  
• These founders focus on building products for the mass users rather than developing a product on an ad-hoc request from a large client.
• Product-centric founders create a strong product culture within their companies that will ultimately accelerate the scaling process of the product.

2) The product itself: while the products differ from one company to another, there are certain general product characteristics that product-led investors look at when evaluating investment opportunities.

• I really love to go through product demos focussing on understanding user workflows and the rationale behind each of the features of the product.
• Product-led investors like simple and unsophisticated UX; something that can be used by anyone, including unsophisticated users.
• As founders understand user journeys, the product is seamlessly integrated into the workflow resulting in higher productivity, reliability, reduced operating costs and efficient use of resources.
• The product enables collaboration which will enable rapid adoption and organic growth (see the next section on GTM).
• New product categories are a big plus for product-led investors (Pietro from Connect can tell you more about that!). This requires founders to think out-of-the-box when designing and building their products. It also requires them to think creatively when building their GTM strategy as they might need to educate the market.
• A critical feature of the product itself is the product usability, making sure the product is delivering value quickly to its users and implying a short Time to Value (TTV). Some common practices to reduce TTV include single sign-on and off-the-shelf integrations (i.e., Facebook/Twitter sign-on). On the pricing side, self-serve free trial, open-source model and freemium model are also used to increase adoption and reduce friction during the onboarding process.
• The product needs to be flexible and modular which translates to customisation; users should be allowed to personalise the product to serve their needs.
• The product is built to enable internal and external virality mechanisms as the main traction channels and in turn, integrated into the design features of the product.

3) The GTM approach: on the GTM, product-led investors do not only look at the way products are sold but also at the way products are adopted and shared among their colleagues and their peers. As Carl from Creandum suggested, it is clear to us that the best products will win; however, a company will not be successful just because they have a wonderful product.

• Product-led investors want to see that the GTM strategy is defined based on the target user and the user journey.
• Most product-led investors are keen on funding Product Led Growth strategies in which companies use their own products as a way to engage, acquire and grow. As Pietro from Connect explained, in PLG (1) distribution happens through the product as users generate new leads while engaging with the product; (2) adoption of the product is facilitated through self-serve onboarding and freemium pricing strategies that allow users to try before they buy; and (3) expansion is built-in as a feature of the product to collaborate within the organization and to power growth externally.
• While product-led investors are keen on funding PLG businesses, they are not limited to businesses that target small and medium enterprises. Many of the PLG businesses also target users in large enterprises and might also consider hybrid models of PLG as well as sales-led GTM strategies.
• Product-led investors look for companies that are growing through inbound leads rather than outbound efforts. Investors want to see that founders understand their users in detail, so they use defined marketing strategies targeted to their users.
• Product-led investors like to see that companies have well-defined Product Marketing strategies that sit at the intersection of the product teams, sales and customer success teams.

4) The metrics: product-led investors pay special attention to metrics that reveal why and how users are using the product. The freemium pricing model allows companies to gather data from users at scale, and ultimately, to measure and observe the way users are using the product.

• Metrics such as net retention rate (expansion), retention and referrals are good indicators of the satisfaction and value that users are getting from the product.
• The network effect is measured through the virality coefficient. A startup with a high viral coefficient experiences accelerated growth.
• The Natural Rate of Growth (NRG) extensively discussed by Kyle and his team at Openview measures the revenue percentage that comes from organic channels. NGR is easy to evaluate and is a phenomenal tool to determine how fast a company can grow based on the product exclusively.
• Attribution metrics are an effective and essential way to determine the success of marketing and digital advertising channels; an efficient tool to track this is through user surveys (i.e. how have you heard about us).
• Time to Value (TTV) is one of the most important metrics for PLG businesses, which determines how quickly a user can derive value from the product.
• Last but not least, churn is also a very important metric and a good indicator of the stickiness of the product.

Ultimately, it is not only about metrics and GTM strategies. It is about the attention that founders are paying to their users and the user journeys. As Carl mentioned, we love to see how founders build stories around the users so they can say “this is the way I want users to use my product”. Understanding the users and being committed to building the products that users love – that is what we want to see. Operationally, building a product-led organization is not an easy task. It is not something that you do by building an experienced product team. It needs to be embedded in the company culture from the start. I am looking forward to investing in founders that are on a mission to build the products that their users love.