Asset Class
Product-Market Fit
Product-market fit is the point where a product reliably satisfies a market need, demonstrated by retention, willingness-to-pay, and scalable acquisition channels. Allocators evaluate how VC managers define and validate PMF because it determines whether growth is durable or artificially purchased.
PMF is often described casually, but allocators treat it as a diligence discipline. Growth without PMF can be fragile and expensive; PMF without scalable GTM can stall. The strongest venture managers have clear frameworks for identifying PMF signals and underwriting the transition from early traction to scalable growth.
How allocators define PMF signals
They assess:
- Retention: cohort behavior and churn dynamics
- Usage intensity: frequency and criticality in workflows
- Willingness-to-pay: pricing power and renewal behavior
- Channel repeatability: CAC stability and payback
- Expansion: net revenue retention or usage expansion
- Market structure: whether the category can scale sustainably
Allocator framing:
“Is growth evidence of durable fit—or the result of spending and momentum?”
PMF by stage
- Pre-seed/seed: early signal; still ambiguous
- Series A: stronger evidence needed; underwriting shifts to scalability
- Series B+: PMF assumed; focus shifts to efficiency and moat
What slows allocator decision-making
- managers using vague PMF language without measurable criteria
- underwriting that relies on top-line growth without retention clarity
- heavy spending masking weak fit
- sector narratives replacing signal analysis
Common misconceptions
- “PMF equals revenue” → revenue quality matters; retention matters more.
- “PMF is binary” → it exists on a gradient and varies by segment.
- “Great product sells itself” → distribution still matters.
Key allocator questions
- What PMF signals must be true for you to lead a round?
- How do you validate retention and willingness-to-pay?
- What is your view on PMF under slowed spending environments?
- How do you spot “false PMF” driven by incentives or subsidies?
- How do you underwrite moat after PMF is achieved?
Key Takeaways
- PMF is a diligence framework, not a buzzword
- Durable fit is proven through retention and willingness-to-pay
- Strong managers define PMF criteria explicitly and consistently