---
title: "The 11 Risks VCs Evaluate"
description: "Discover the 11 key risks VCs evaluate when investing in startups, from market timing to execution. Essential insights for founders seeking venture capital."
categories: ["fundraising"]
keywords: ["Theory Ventures","Tomasz Tunguz","venture capital","startup risks","investment evaluation","market timing","business model risk","execution risk","financial risk"]
ai_summary: "Explore the 11 key risks VCs assess when investing in startups, essential for founders seeking funding."
date: 2013-03-28
lastmod: 2026-07-31
canonical_url: https://www.tomtunguz.com/the-11-risks-vcs-evaluate/
author: "Tomasz Tunguz"
---

<p>Though the industry is called venture capital, the goal of a VC isn’t to maximize every risk. Instead, we try to understand all the risks a business might face and weigh those risks with the reward - the exit. Here are the major risks that I typically review when a startup pitches. </p>

<p><strong>Market timing risk</strong> - Is now the right time for the business? It’s often hard to evaluate this risk, but nevertheless, it’s an important consideration. There are many stories of people saying I invented Facebook before Facebook, which may very well be true. But the market just wasn’t yet ready for it.</p>

<p><strong>Business model risk</strong> - Is there a clear business model? Do the unit economics seem to work? If not, what are the assumptions required to achieve profitability?</p>

<p><strong>Market adoption risk</strong> - Are there strong competitive players in the market? What are the major barriers to entry?</p>

<p><strong>Market size risk -</strong> If the company is successful, is the exit scenario large enough to <a href="http://tomtunguz.com/how-to-align-founder-and-vc-incentives-why-fund-size-matters">provide the types of returns our fund needs</a>?</p>

<p><strong>Execution risk</strong> - Does the team have the right skills and passion to reach their goals? If not, are they amenable to finding others to complement their skills?</p>

<p><strong>Technology risk</strong> - Does the company have to develop a new technology that may not reach fruition, or may take much longer than expected? This is typically more prevalent in cleantech and hardware companies.</p>

<p><strong>Capitalization structure risk</strong> - does the company have enough room in the cap table to take more investment necessary to grow while still ensuring employees and executives are well compensated?</p>

<p><strong>Platform risk</strong> - Is the startup building atop YouTube, Twitter or Facebook? How strong is their relationship? Are their product plans in the direct path of the platform or complementary?</p>

<p><strong>Venture management risk</strong> - Is the company receptive to feedback? Is the team candid about the state of the business?</p>

<p><strong>Financial risk</strong> - How much money does the company require to achieve its goals? Is the financing risk manageable given the current environment and company trajectory?</p>

<p><strong>Legal risk</strong> - Does the company have a high likelihood of lawsuit for patent or copyright infringement? Does the company have any outstanding complaints with early employees or founders? Are there regulatory challenges involved in this sector?</p>

<p>The list of these risks applies differently to each startup, but it’s a good general outline for entrepreneurs to think through when they pitch their companies to VCs.</p>