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Daniela Machado, Partner at Heartfelt VC, explains how early-stage investors evaluate founders, ideas, and markets — when traction matters less and judgment matters more.

What a First-Check VC Really Looks For

Early-stage founders often assume venture capital decisions revolve around traction, revenue, or growth metrics. But for a first-check investor — a fund that enters at the ideation or pre-seed stage — the calculus looks very different.

In a recent conversation, Daniela Machado, Partner at Heartfelt VC, unpacked how her team evaluates founders and ideas when companies are still forming. Her perspective offers clarity for anyone navigating the earliest phases of building.

From Law to Venture Capital

Daniela Machado did not begin her career in investing. Her background is in law; she is a Spanish-qualified lawyer who spent years working in the financial sector. After moving to Germany, she joined a law firm where her work gradually shifted toward venture capital and crypto.

What began as a legal role evolved into deeper involvement with startups and founders. By the time she left the firm, the majority of her work centered on venture deals rather than regulatory topics.

In 2021, she joined APX, Heartfelt’s predecessor fund. Initially hired for legal expertise, she soon transitioned into investment work — drawn by the opportunity to move beyond advisory services and become directly involved in company building.

“Never Too Early, Sometimes Too Late”

Heartfelt VC operates as a first-check investor. This positioning defines much of their strategy.

A first-check investor aims to be the earliest institutional capital on a startup’s cap table. The philosophy, as Daniela describes it, is simple:

“Founders are never too early for us — but they might be too late.”

Unlike later-stage funds that depend heavily on traction signals, Heartfelt is comfortable investing at the ideation phase. However, once a startup already has established investors or is further along, it may fall outside their entry criteria.

How Ideas Are Evaluated Without Traction

When startups lack revenue or validated metrics, what replaces traditional diligence?

Daniela points to several core factors:

1. The Founder and Founding Team

At the pre-seed stage, the founders themselves become the primary variable. Their thinking, clarity, and understanding of the problem often outweigh numerical indicators.

Heartfelt examines:

• Depth of market understanding
• Domain expertise
• Motivation and long-term vision
• Ability to adapt and pivot

2. Market Dynamics

Even at ideation, investors assess:

• Market size
• Competitive intensity
• Growth vs decline trends
• Positioning opportunities

A compelling idea in a shrinking or extremely niche market may struggle to qualify as a VC-scale opportunity.

3. Technology Risk

Daniela highlights how quickly technological shifts can invalidate startups — particularly visible during the rapid adoption of large language models (LLMs).

Many AI startups, she notes, became obsolete when larger players released superior infrastructure or capabilities. Early founders must therefore consider:

• How defensible is the solution?
• Could major platforms replicate it easily?
• Does technological change amplify or erode advantage?

Founder-Market Fit Over Product-Market Fit

In later stages, product-market fit dominates conversations. In early stages, Daniela emphasizes founder-market fit.

This refers to whether founders:

• Truly understand the market
• Are solving a meaningful problem
• Can navigate uncertainty
• Demonstrate resilience

Because pivots are common — even expected — investors often bet more on the team’s judgment than the initial concept.

Are There “Bad” Ideas?

Daniela resists labeling ideas as “good” or “bad.” Instead, she distinguishes between:

• Ideas that can build sustainable businesses
• Ideas that can build venture-scale businesses

A startup that solves a minor inconvenience or serves a tiny niche may still succeed commercially. It may simply not align with VC return requirements, which depend on exponential growth potential.

Why VCs Care About Scalability

Venture capital is structured around delivering outsized returns to limited partners (LPs). This economic reality shapes decision-making.

Investors seek opportunities that:

• Scale rapidly
• Address large or expanding markets
• Generate significant exit outcomes

This does not diminish smaller, profitable businesses — but explains why many solid companies are not VC-backed.

Capital Concentration: Yes and No

When asked about capital increasingly flowing into fewer companies, Daniela offered a nuanced view.

At the early stage, diversity remains relatively healthy. Numerous funds continue investing across sectors and geographies.

At later stages, however, capital concentration becomes more pronounced. Over the past few years, a significant share of private funding has flowed into a small cluster of AI leaders.

The implication for founders:
Early fundraising environments may feel broad; later rounds often narrow dramatically.

Business Plan vs MVP: What’s Enough?

For Heartfelt VC, founders do not need:

• A finished product
• Monetization
• Traction metrics

They do need:

• A thoughtful deck
• Clear articulation of the problem
• Market understanding
• Logic behind the business model

An MVP helps but is not mandatory at first contact.

When to Raise: Before or After Product-Market Fit?

Daniela’s answer: it depends on investor type and company needs.

• Early-stage VCs may invest pre–product-market fit
• Business angels often prefer validated products
• Post–product-market fit raises may command higher valuations

European founders also benefit from non-dilutive public funding sources that can extend runway before private capital.

Funding Realities for Non-Profit Startups

Traditional VCs rarely invest in non-profit entities due to structural return constraints.

Alternative paths include:

• Public grants
• Foundations
• Corporate funding programs
• Impact-focused capital

Founders building non-profit models must align capital strategy with mission structure.

How First-Check Investors De-Risk

Despite entering early, Heartfelt mitigates risk through:

• Deep founder assessment
• Internal market research
• Expert and mentor networks
• Co-investment with industry specialists

In some cases, they join the first round rather than leading the very first check, particularly in complex sectors.

Solo Founders: Possible but Scrutinized

Heartfelt does not automatically reject solo founders. However, Daniela notes concerns around:

• Cognitive blind spots
• Lack of idea challenge
• Emotional and operational load

Additional founders introduce diversity of thinking and resilience. Solo founders may offset this through strong advisory networks.

Rejection Isn’t Always Final

If a VC declines an opportunity, returning later is viable — if circumstances have changed.

Investors may reconsider when founders demonstrate:

• New validation
• Expanded market insights
• Refined positioning
• Stronger traction signals

Re-pitching without material updates is unlikely to succeed.

Final Takeaway for Early Founders

At the ideation and pre-seed stages:

• Founders matter more than metrics
• Market logic matters more than polish
• Adaptability matters more than certainty

The earliest investors are not predicting outcomes. They are evaluating judgment, resilience, and the capacity to build something meaningful in uncertain terrain.

You can watch her speak to Christian Sauer about all the above here on YouTube.