What VCs Actually Look For: Matan Hazanov on Building a Scalable, Resilient Business

Jeffro (00:01.772)
Most of our guests on this show run service businesses themselves. But today’s guest sees the other side of the table. He decides which businesses get funded. Batan Hazinov is a venture capitalist and co-founder of Enigma Ventures with over 15 years of experience in venture capital and entrepreneurship. Before Enigma, he was managing director of Vertra Ventures, the VC arm of Constellation Software, where he led venture investing and innovation initiatives. Before that, he spent seven years building startups himself. And altogether, he’s contributed to more than forty investments across North America, the UK, Latin America, and Israel. Now, most of our listeners aren’t raising venture capital, and that’s actually what makes this conversation interesting, because what Maton looks for in any scalable, resilient, fundable business often overlaps with what makes any business, including a local service business, genuinely strong. So today we’re going to talk about how founders prepare for fundraising, what actually makes a business scalable, and the resilience it takes to build something that lasts. Maton, welcome to digital dominance.

Matan Hazanov (00:59.387)
Thank you for having me.

Jeffro (01:01.373)
Absolutely. Now you’ve been on both sides, like I mentioned in the intro, you know, building startups yourself, now investing in them. How does having been a founder change the way you evaluate founders now?

Matan Hazanov (01:12.613)
Well, it gives you a little bit of an appreciation for the struggle of building a business. And you know, at least one gives you a little bit more of a BS meter. You can kind of parse through what’s real and what’s not sometimes, but mostly it’s just a matter of having a little bit more empathy. But really, being a VC, you don’t really have need to start a business before. not necessary at all, to be perfectly honest. A lot of successful VCs were not founders.

Jeffro (01:23.668)
Mm-hmm.

Jeffro (01:38.956)
Mm-hmm. Well, I mean it’s a different skill set, the things that you’re looking for, right? It’s a very it’s important, obviously. It h if you are a founder and you understand those things, that’s gonna help you. But yeah, I can see the difference. So with your time at Versta Ventures, right, they have a very specific investment philosophy. did you what did you take away from that experience that you’ve carried now into Enigma?

Matan Hazanov (02:03.301)
So Constellation itself is a behemoth. They do many, many acquisitions a year of vertical market software businesses. You know, these are typically companies that are dominant in a particular vertical. They have strong cash flow. They’re not usually high growth. So not exactly, you know, what venture investors are looking for, but they’re very good at what they do, not just in terms of acquiring businesses, but in operating them as well. So one of the things I learned from them, aside from just a general learning of what makes a good software business. it is the discipline of being a good capital allocator. they are they have a very specific buy box and what they look for and they stick to it, you know, in in most cases. So in venture, unfortunately or fortunately, a lot of the times you’re investing on vibes. You know, it’s like you meet someone and they sound like the type of person you want to invest in. They’re building in a market that you want to be a part of and you’re making bets essentially on people that haven’t demonstrated much yet, or else they’ve already raised money, a lot of money that that is beyond you. So it’s kind of like applying this disciplined approach that Constellation has to the vibes of early stage investing. And marrying those two perspectives and elements was actually an interesting thing that I learned.

Jeffro (03:23.785)
Yeah, that’s really interesting. So I wanna also get into some of these, you know, detailed tactical things that our listeners can take away. So if we start with fundraising prep, what’s gonna separate a founder who’s genuinely ready to raise money from one who thinks they’re ready but isn’t?

Matan Hazanov (03:40.538)
Yeah, it’s a great question that I get asked a lot and I see a lot of founders in the wild that think that they’re ready and are not. so the first there there’s a lot of things. There’s like a checklist of things one can go through, but the the simple thing is from the founder’s point of view, are they ready to take on a partner? so that is an emotional thing and it’s also a practical and strategic thing. There they have to be able to number one, be accountable to somebody that’s not themselves and their co-founders, right?

Because now they have likely to look going to have a board or someone they have to report to, something that they’re responsible for, that is so to speak, not running the business with them. So that is kind of for the founder to figure out themselves emotionally and tactically if they’re ready for something like that. But more importantly, are they they should figure out if they’re the type of business that’s VC fundable. And a lot of founders don’t quite do this. They don’t understand what VC fundable is they think they have a great product and they got sales and therefore they can raise a bunch of money. VCs are a very, it’s a very peculiar type of business that exists to fund a very specific, small subset of businesses. And those are businesses that can scale like crazy, right? They lose money for many years, they scale, they grow 300% a year, and then they get some massive exit, you know, seven to ten years from now. Very few pe businesses can get from like a $10 million valuation or $5 million valuation to multi-billion dollar valuation in that short period of time. So a founder needs to understand what that kind of business looks like and if they are building that type of business. So that’s the structure of the business itself. And then practically speaking, you know, if they’re ready to raise, they’d have a data room, they have a good pitch deck, they’ve spent a lot of time developing relationships with VCs before did they need they need to raise. So there’s a lot of like so there’s the personal of the founder, like are they emotionally ready for it? There’s the there’s the actual structure of the business.

Are they building the type of business that’s VC scalable? And then third is the more practical aspect of fundraising, have they actually laid the groundwork to be successful when they actually got to market?

Jeffro (05:47.494)
So I don’t want to go too far into the weeds here, but can you give us a glimpse at some of the maybe documents or numbers or proof points that you want to see before you’ll even take a second meeting?

Matan Hazanov (05:58.086)
So it depends a lot on the industry, right? So if you’re a early stage investor like I am, there doesn’t need to be much in terms of traction in the business. You’re investing essentially in the team. So when we’re looking at a team, there’s two things we really take a step back. There’s two things we really care about in the early stage. And from those two things, a founder can kind of look back and say, okay, what do I need to demonstrate to show that I have those things?

So the first thing is the market. They have to be playing in a very large or rapidly growing market. So that is what it is. We can leave that aside. Everyone understands what that means. Second is the founding team itself. And the founding team needs to demonstrate one of two things. They either need to have a good track record or traction. So track record is what they’ve done in their life that shows that they are exceptional people. Because this is a game of, you know, investing in a hyperscale business is a game of exceptional exceptions.

You can’t just be great. You have to be the greatest among great people. So what have you done in your life to demonstrate that you’re great? And the second is traction. So can you demonstrate greatness within the business itself? So as an example, let’s say you don’t have you haven’t demonstrated anything in your life. You’re 22 years old and you’re just starting out. You’ve never built a business. So what VC is gonna take a chance on you? You haven’t demonstrated any credibility. You’re just asking them to trust you that you’re great. Okay, maybe, but not likely gonna happen that you’re gonna raise money.

Let’s take that same 22-year-old and they’ve vibecoded a business or vibe, just built a business and got to $2 million in revenue in six months. Now, that in and of itself is so exceptional that a VC can say, they’ve demonstrated exceptionality with the traction in the business itself. But let’s say they don’t have that, and you’re that same 22 year old. Okay, well, let’s look at their life. Let’s say they were a star athlete in high school, or they they were building products.

Since they were eight years old, or they’re they’ve they’ve gotten PhD from MIT by the time they graduated at 22. Like there’s different things you could do in your life to show to show that you’re exceptional. But that’s what you have to do. You have to demonstrate exceptionality either in the business itself or through what you’ve done in your life. And so when you’re actually putting together your your pitch, that’s what you have to show them. You have to show them, like, hey guys, I’m exceptional. You have to really take me seriously. And not only am I exceptional.

Matan Hazanov (08:23.91)
But I’m playing in this massive market where we can get, you know, multi billion dollar outcome very soon.

Jeffro (08:29.728)
So it’s just just as much about pitching yourself as the founder, as the capable leader of this idea, in addition to the fact that it is a great idea with all this potential in this big market, blah blah blah.

Matan Hazanov (08:40.036)
Exactly. And you’ll see I’ve left out a lot of things like nobody k like the product is important, but not as much as you’re playing in the right market. you know, it doesn’t matter that you’ve hired a VP of sales from some random place. It doesn’t matter that you were, you know, like just certain things just don’t matter, you know. Those two things, if you can demonstrate them, like you’ll you’ll probably raise money.

Jeffro (09:01.282)
Yeah. So that that helps give us a a an idea of what makes a business V C scalable, right? I imagine there’s another aspect of it, not just being in the right market, but having a proper business model with particular margins and fulfillment costs and things. Could you speak to that just a little bit?

Matan Hazanov (09:18.842)
Yeah, that that’s actually one of the things I don’t think matter that much in the early stages. Because a lot of times those things kind of figure themselves out if you if you are an exceptional entrepreneur or person, you’ll figure things out with the right advisors, with the right executives around you. Like those things you can generally figure out. So like one of the questions like, Go, what’s your go-to market strategy? Like, I don’t care. You know, like you know, you’ll figure it out. You know, you’ll figure out how to get customers if you have no revenues yet, if you’re exceptional, you know. So

That’s why I focus a lot on those things. So if you’re a if someone’s actually going to raise money and they’re looking how do I craft a good pitch to someone, think about it through that lens. Market and being exceptional as a person.

Jeffro (09:59.392)
So that makes sense. Now a lot of our listeners run service businesses, you know, HVAC companies, medical clinics, law firms, which traditionally are often seen as not scalable, right, in the V C sense. so is that a fair assessment or are there specific elements of scalability that can apply even to one of these service businesses that’s never gonna raise money?

Matan Hazanov (10:18.884)
Right. It’s a great question because again, we have people reaching out to us all the time that are building services businesses. And this is why VCs tend to focus on tech more so than anything else, because inherently within let’s say a software business, it’s scalable. You build it once and you can kind of rent it out for many years to many different people, right? The marginal cost of adding X revenue is very small, right? Whereas a service business, you have to pay people to give the service and therefore the marginal cost is pretty high to add an additional piece of revenue.

Right. So that’s the reason why mostly most most of the time services businesses are not fundable. Today we are seeing something change a little bit, and that is service businesses that are implementing new tools to become scalable. So I’ve seen a plethora of service-based businesses like accounting firms, architectural firms, different types of businesses that are coming to VCs and they’re getting funding and they’re saying, listen, we’re gonna go acquire 100 companies like us.

But we’re going to them super efficient by implementing AI as an example. And we can acquire, if we can acquire 20 a year and we build that kind of flow to acquire and integrate these businesses, well then we become VC scalable. And they’re right. There’s nothing inherently wrong with being a service business. It’s they need to show that they’re scalable. And we’re actually seeing a lot of that happen today.

Jeffro (11:38.888)
Yeah, there’s a an explosion of new tools and things being built around AI to enable this in niche markets because it’s now so much easier and faster to build this stuff. So I I imagine you’re gonna have a lot more options in some of those industries in the near future. Is is is there a ceiling that most service businesses hit because of how they’re structured? And is this the way you break through it? Is it just with the tools or is there something else that needs to be addressed?

Matan Hazanov (12:08.378)
I don’t know if there’s a ceiling because over a long enough period of time you can get massive service businesses. Like there’s multi billion dollar law firms out there. It’s like that is one of the least scalable businesses. It’s based on partnership model mostly and like you have to build hours, you have to hire lawyers. Like it’s just it’s a nightmare to think to scale a business like that. But there are multi billion dollar law firms out there, right? So it’s not like it’s impossible. It’s just it’s it’s more of a matter of how long it takes, right? And the risk inherent in doing that, I think it’s probably much greater than it would be if you’re building a software business. You know, ten years ago if you’re building a software business, there’s a clear way to scale that in a way that makes sense for VC. so I don’t think it’s impossible. It’s just probably very hard.

Jeffro (12:55.908)
All well let’s let’s switch back to the founder for a minute. You know, we can talk about resilience and the things you look for in a founder that makes them worth investing in. what does that resilience actually look like in a founder who succeeds versus one that doesn’t? And if you can share an example, you don’t have to name names if you don’t want to, but maybe a founder who kind of was facing something and then through their resilience were able to navigate through it.

Matan Hazanov (13:20.218)
Yeah. So I I invested in a company in the event management space. So they it was a marketplace for event staff, which is a great business, certainly even back then, but it’s a great marketplace business. And we had a good thesis. This was in we closed the initial investment in December twenty nineteen. And you know what happened a few a few months later, you know. So what was interesting about that business is that and actually my first my second podcast episode I ever did for my own podcast was with this founder.

Jeffro (13:41.061)
Yes.

Matan Hazanov (13:49.825)
People can look it up. So what happened there was basically reven revenues went to zero overnight. And I’m not going to go through all the details, but this founder is very tenacious. And what happened over the next year or two is that revenues went up, staff went up, staff in terms of the employees, you know. Obviously, there was a period where they had to get rid of some some employees. But during the restrictions, this founder was able to build new products that made sense for the market as it was at that time and was able to be cash flow positive during this period. Meaning they were making money. It was just crazy. I thought I was I really I kind of in my mind, I wrote it off and like, okay, we’re screwed. But it worked out, you know, and they’re still building their business and it’s that period was a boon for them rather than, you know, something that destroyed them.

Jeffro (14:24.89)
That’s impressive.

Jeffro (14:41.525)
Is resilience something that can be developed or is it mostly innate to certain personalities and backgrounds?

Matan Hazanov (14:48.4)
Great question. It’s very I think a bit of a deep philosophical question. And it goes to characters character traits in general. I’ll tell you my experience and what what I’d like to be true. In my experience, I think I I don’t I don’t know if I’d go so far as to say people are born with it, but I think at a certain point in someone’s life, I think those certain character traits are set. So if someone by the age of 25 or 30 has demonstrated that they are not resilient.

I’m not gonna risk my investors’ money in trying to demonstrate otherwise. Right. And if they have demonstrated that they’re resilient, well, it doesn’t mean that they’re investable on that basis alone, but it checks off maybe one of the many things I need to check off before investing.

Jeffro (15:34.585)
Makes sense. How so given that, let’s say you have Ratsaman on, how do you personally coach founders through the low points? You know, what do you tell them when they’re in those rough patches?

Matan Hazanov (15:46.683)
Yeah, it’s something I I work on myself because it’s very much a coaching aspect that VCs should develop. Now, the first thing I my first perspective is always it’s your business. It’s do or die. You know, I’m not gonna be able to you either make you by the by the time they actually get the funding, they’ve already crossed so many hurdles. I think the the numbers are a bit crazy. Like one in a hundred founders are gonna have to raise actually get funding or one in fifty. It’s it’s not it’s a very small amount of people actually get through that barrier of actually raising money. And most founders, if they have a good mindset, understand how lucky they are. Obviously the VC is also lucky to get it invested to invest in great founders. But from their point of view, they should like they’re they’re so they should have gratitude that they’ve they’re in this position to risk other people’s money to pursue their dreams and to build a world class Category generational business, like how how amazing that is. So that’s the first thing in terms of whenever I speak to founders that are going through a bit of a challenge, is like, you have this amazing opportunity, and it’s really up to you to make it to make it into something amazing or to fail. Nobody can help you but yourself. Like it’s all on you. And there’s kind of this victim mentality that’s mutating in the the founder community, it’s in the world at large, the Western world at large, but certainly.

Jeffro (16:45.375)
Hmm.

Matan Hazanov (17:11.524)
founder community has not been immune to this, is that if they fail, or if they don’t get funding, but certainly if they fail after funding, it’s not because of them. It’s not their fault. It’s some external third party whatever. and I think the first thing a founder needs to do is be able to take responsibility and say, My success or failure is up to me, even if it is, you know, it’s the failure’s not them, you know. and that’s what I tell them. Now, of course, we do whatever we can to support them make the right connections, provide them right support, financing if it’s needed. one one great VC I I see one of the I don’t we don’t do this, but another VC, it’s something maybe we should do. But one VC offers as part of their investment. They have this like benefits package where they can actually like see as therapist, you know, as part of their as part of the package they offer as an investment. And I’m like, that’s pretty interesting. Like founders probably need to to have that in their life, you know, and be encouraged to have someone that they can speak with.

Jeffro (18:08.158)
Yeah.

Matan Hazanov (18:11.344)
So that stuff like that.

Jeffro (18:14.292)
That’s basically investing in the human resource to guarantee a better rate of return on your investment, essentially, right? If the founder is such a a critical piece of it, then that makes a lot of sense. So i I I want to talk about red flags. So you mentioned someone speaking in that victim mentality, like, it wasn’t my fault, the market, blah, blah, blah. So I imagine that’s one of them. Are there other red flags that immediately make you feel hesitant about a deal, even if the numbers look good on paper?

Matan Hazanov (18:40.432)
Yeah. certainly. I I have a whole I made a whole video on this, like all the things like you shouldn’t do when you’re raising money. It’s like don’t say these things. And some of them are so obvious, but because I see it so often, it kind of worries me. Like, why is something so obvious not taken into account? Like, hey, don’t lie. Like don’t say things you can’t prove, you know, or else you lose all credibility. It’s like so there’s a lot of exaggerations that happen, which you can understand. It’s like applying for a job, you’re gonna

Jeffro (19:00.389)
Yeah that should be obvious. Mm-hmm.

Matan Hazanov (19:10.296)
make the thing sound as best as it can within state the bounds of truth. but when you’re approaching that line, you have to be very careful not to cross it. Right. So I had I have many stories I can give you, but like just like I was so interested in the business and the founders, like they said something so that that made me lose trust in them. So okay, don’t lie. You know, don’t say, don’t things like or if we only get one percent of the market we’ll be a thirty trillion dollar company. Like this stuff is just stupid.

Jeffro (19:37.468)
Yeah.

Matan Hazanov (19:39.963)
Like don’t say that. don’t make your market seem bigger than it is. Like I had a guy saying, you know, our market is basically all employees everywhere in the world. I’m like, okay, it’s n it’s not, you know, our market is seventeen trillion dollars. Unless you’re SpaceX or anthropic, don’t say that, you know. Like there’s just some things like and why why are these things important? It’s not so much that, you know, you shouldn’t be ambitious and I had one guy tell me he his his the problem he’s solving is world peace and his business was like a sports organization. Like they’re gonna do sporting events. I’m like, come on, man. Like that so why are all these a problem? You know, it’s all it does is is it functions to make you lose credibility. And because this is a very high trust kind of investment, you know, the second you lose credibility or that the chink in that credibility is made, it just you there’s no reason to pursue the conversation anymore.

Jeffro (20:34.203)
we’ll have to have people go watch that video. Are there any green flags that get you excited, you know, even if the business is still early and rough around the edges?

Matan Hazanov (20:42.032)
Yeah, so really all the green flags are basically the opposite of the red flags and those two things I mentioned at the beginning, which is demonstrating exceptionality. So anyone that I’ll give you some examples, like practical examples of founders that are doing the right things, right? So let’s say I speak with a founder and it’s not the right time for us to invest, or they haven’t demonstrated enough for us to invest or whatever. So if they have a very simple thing, a monthly update to interested investors and what happens with something so simple is that the investors can see your progress over time as it happens. And then when you’re ready to go raise money or when you’ve made enough progress, you’re raising money if you’ve done the right things, you know, your business has actually grown. Then it’s like it’s easy to raise money, you know? It it’s the transparency is so important. Yeah. Yeah. So there’s just small things one can do. Building in public is another big one.

Jeffro (21:31.032)
Next logical step, right?

Matan Hazanov (21:38.501)
that social proof as much as we don’t VCs don’t like to admit it, you know, social proof is important. Like if you’re, you know, very popular on X or LinkedIn, it’s not gonna make or break an investment, but it certainly helps. If I look you up and I see that you’re active and that people are listening to you and paying attention to what you’re doing and you’re influential, it’s certainly better than you having like no LinkedIn profile or no public presence, right? Does it make or break either way? No, but it again, you’re talking about grief, like this is

It’s building a whole story around the person.

Jeffro (22:11.641)
More of the positive things you stack up, obviously that increases your chances and remove the red flags, fix the character flaws, and you’ll have a better chance of going forward. Okay, so back to our listeners. You know, a lot of service business owners, if they’re never gonna raise VC money, what can they take from you about how you evaluate businesses? What should they be measuring or thinking about in their business today?

Matan Hazanov (22:35.216)
Yeah, it’s an interesting question. I haven’t given it too much thought. I’ll say first that I think the service-based business people are ahead of the game. So if they see all this nonsense online about this company rate a s raise a seed round with a pitch deck for like a hundred million dollars, it’s like ignore that nonsense, first of all. You guys are me I’ll give you this, I’ll tell you a story by myself. Like I I my first real job was in a VC firm. was very lucky and I did that for about four years and I I quit to start a business and I did something very simple. I just sold something and I made money from it. And I think I made like $30 like profit. And that one $30 profit I made made more money than all the companies that I invested in the VC firm combined. Like because those companies never made money. They were never profitable. In like one trade I did in an afternoon, I mad more profit than all those companies combined. So that’s a very important thing, like to frame my mind a little bit. It’s like a lot of this stuff is on paper. It’s not real. It’s not real. You know, it’s just, you know, the money’s real, but everything else around it is not until it until it is. And so if you’re have a service business and you’re providing real value to people and you’re actually making money, it’s like that’s that’s great. That’s that’s like a you know, I envy that, you know

Like I really envy that a lot of times. And I think a lot of founders that are playing this game of become a multi-billion dollar business or bust envy that as well. That’s where I would start. Is like, okay, you’re you’re doing something different, but it’s actually in a lot of ways much better and much better way to build wealth. the other thing is, you know, figure out what your goal is. Like if your goal is to make a couple million dollars a year, you’re gonna be doing something very different than if your goal is to make 10 or 20 or 100, right? So if you know what your goal is, then you can start.

adjusting everything you do towards that goal. What I see a lot of founders do or not do is not think through what their real goal is. Like what is their North Star? What are they trying to accomplish? I have that for myself. And that’s that’s how that’s how I work towards my goals. Right. So if your goal is to build a hundred million dollar business, well, you have to think about it very differently in terms of how you s you have to set up processes at that point. You can’t be like a lot of service people I know. It’s like a

Matan Hazanov (24:59.736)
one person with a small team and if they stop doing work, the business is gone. Like there’s no business anymore. Right. So if you want to build a significant business that can grow and scale, you have to start thinking in terms of how do you set up processes that where you’re no longer needed in the business. you know, some in my family, you everyone in my family are entrepreneurs. And that’s one of the downfalls I feel of like these of entrepreneurs, like they they can never replace themselves.

You know, and that’s the way I would start thinking about my business if I were to do this. It’s like how do I set up my business that I’m I can I’m easily replaceable?

Then you could really that that don’t that unlocks so many things from there.

Jeffro (25:43.626)
If you can handle that ego hit, then you actually yeah, it opens up the future, right? Well, this has been a really valuable change of pace, I think, for our listeners, because even if venture capital is not in your future, the way that Maton thinks about scalability, resilience, and what actually makes a business strong applies no matter what kind of business you’re running. And one of the big takeaways for me is that whether you’re pitching a VC or just trying to build something sustainable, the fundamentals are the same.

Matan Hazanov (25:46.384)
That’s right.

Jeffro (26:13.148)
Yeah, knowing your numbers, yes, but understanding your business and what your goals are, your North Star, having character as the founder, right? Not lying, like building systems that don’t depend entirely on you and developing the resistance to keep going when things get hard. So Maton, for folks who want to learn more about Enigma Ventures who are interested, or to check out your podcast, where should they go?

Matan Hazanov (26:33.98)
Yeah, thank you. thank you, Jeff. It’s a great conversation. you can find me on LinkedIn, Matanazanov, my name is just it’s a very unique name. Nobody else has it, so you’ll find me by searching that. Same thing on Instagram and X and even TikTok. I think I have a TikTok also. if you want to listen to my podcast, you can find all my links there too. But if you want to listen to my podcast, you can search up my name on YouTube, you’ll find my channel, or search up the Profit or Pivot Podcast on all podcast networks.

Jeffro (27:03.184)
Awesome. Well, listeners, th your takeaway, even if you never raise a dollar of outside capital, you can ask yourself the questions an investor would ask about your business. Is it actually scalable or does it only work because you’re the one doing everything? And that’s a question that’s worth sitting with this week. Thanks for listening. Please make sure to subscribe to Digital Dominance, leave a review, and take care. And we’ll see you next time. Thanks again, Baton.

Matan Hazanov (27:24.39)
Thank you.