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What kind of returns are Venture Capitalists looking for?
Big returns. VCs are not banks - they do not charge an interest rate on an equity investment.
Note: There are such things as venture firms who also do convertible & bridge loans. This is explained in another question
VCs are looking for returns in excess of 10x. So if they give you a million dollars, in a few years, when you exit the company by either an acquisition or an IPO, they want at least $10M.
Now they don't expect every investment to be a home run like that. That's why they diversify and make multiple investments. They know that some of them will fail, some will do OK, fewer will do very well and 1 or 2 will be the home run.
But their investment process qualifies companies as if you are going to be the home run (not the strike out)
Another thing you have to remember is that eventually the investor wants to be paid back! This means that you need to 'exit' the company through an M&A (selling the company), or the less likely, IPO (going public). While they don't expect you to do this right away, once they write the check, they will be helping you grow your company specifically for this purpose.
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