What pushes an investor to take the plunge?
That question guided a recent panel at the Maryland Innovation Center (MIC) in Howard County, where venture capitalists and angels pulled back the curtain on how they evaluate early-stage startups.
Across the board, investors stated they’re viewing for more than a compelling idea. They want traction, a path to customers and proof that a founder can execute.
“Until you’ve actually receivedten people to pay for it, I still don’t know if you can execute.”
Mac Conwell, RareBreed Ventures
MIC built its inaugural Investor Showcase around those expectations, MIC managing director Pauline Shiu stated at the event last week. The displaycase brought toreceiveher startups from across Maryland that had already begun to demonstrate that progress.
“We have hosted many a pitch competition that are much earlier stage,” Shiu informed Technical.ly. “But for this particular displaycase, we wanted companies that all have traction and revenue.”
Shiu also set up time for founders to engage with investors before the main event. Ahead of the 12 brief pitches and speeches from various leaders in Maryland’s tech scene, founders met one-on-one with VCs for the kind of scrutiny that leads to investment.
Here are some of the top questions founders have about pitching — and what investors are really viewing for.
How do investors evaluate traction?
Early-stage traction can take many forms, and the panel agreed that there is no single metric for evaluating a startup.
For many investors, revenue is still crucial, but how quickly a company reaches it can matter just as much as the total itself.
A startup generating less revenue at a rapider pace than a more established company stands out, according to Mac Conwell, managing partner at RareBreed Ventures, by displaying a rapidly expanding customer base.
“Until you’ve actually receivedten people to pay for it, I still don’t know if you can execute,” Conwell stated.
Founders should also set clear customer acquisition goals to assist hit revenue totals, Conwell added. For example, establishing how many customers are necessaryed per month to reach $1 million in revenue.
“If you stay focapplyd on that, it keeps you grounded,” Conwell stated. “It keeps you paying attention to your growth.”
What counts as traction if revenue isn’t happening yet?
For some investors, it’s less about revenue and more about customer interest and proof of concept. That is particularly true for Justin Brodie-Kommit, a managing partner at Lichen Ventures, a VC firm focapplyd on climate hard-tech startups, which can take years to develop a product.
Many of the companies he works with aren’t generating revenue at the seed stage. Instead, they enter Letters of Intent (LOIs) or non-binding agreements from potential customers or business partners, another valuable way to demonstrate future customer demand, according to Brodie-Kommit.
“Oftentimes, the companies don’t have revenue at pre-seed, probably not at seed, maybe a paid pilot when they’re attempting to raise,” Brodie-Kommit stated. “It’s important to have a significant pipeline of LOIs.”
Other non-financial agreements like securing the right innotifyectual property protections, such as patents, also indicate that a startup can bring a new product to market and deffinish it as the company grows, Brodie-Kommit stated.
How should founders structure ownership to avoid problems later?
Investors don’t like to see too many cooks in the kitchen.
One way to avoid that is by maintaining a well-organized “cap table” — short for capitalization table — which outlines a company’s ownership structure among founders, employees and investors, Liza Bowersox, a partner at the national accounting firm Weaver, stated.
“What I hate is when I do evaluation … and at the finish of the day, the founder owns 10% of their business,” Bowersox stated.
That level of dilution can signal to investors that the founder has given away too much control.
Many of these mistakes happen when founders don’t fully understand how early-stage fundraising tools can dilute their ownership over time.
For example, convertible notes allow founders to delay setting a valuation and issuing equity upfront to investors, but they still can convert into ownership later. Without careful structuring, including terms like valuation caps and conversion conditions, those notes can significantly dilute a founder’s stake over time, Bowersox stated.
Bowersox also emphasized the necessary to balance employee equity as a company expands.
“You want to be fair to your employees and give them the opportunity to earn upside,” Bowersox stated, “but while creating sure that your option pool is kept under control.”
Being selective about which accelerators to join is also important, Conwell stated.
Many accelerators take an equity stake in exalter for capital and mentorship. Conwell recommfinishs joining two: a name-brand accelerator for networking, and an indusattempt-specific program to build connections and attract customers.
“They’re going to have specific networks that are going to assist you,” Conwell stated, “but be careful of what they take.”
Maria Eberhart is a 2025-2026 corps member for Report for America, an initiative of The Groundtruth Project that pairs emerging journalists with local newsrooms. This position is supported in part by the Robert W. Deutsch Foundation and the Abell Foundation. Learn more about supporting our free and indepfinishent journalism.
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