Learn how to do DD like a startup founder with these 66 checks (and learn how to spot shams)

So apparently my new thing is writing blogs on planes. Planes are good because no distractions and wine. People who know me know that I am quite vocal with my opinions and often suggest I should write a blog based on some of my ideas. My last one was on hiring interns.

Why this topic? I feel specifically in Australia that because startups are relatively ‘new’ 90% of people involved have literally no idea how to tell what is legitimate and what is a sham. Obvious one being journos, who seem to be happy to take the founders word as gospel. I know these people are very short on time, so maybe this will help. From what I read the US startup press is better at startup analysis. In generally I hope this article will help people filter out the shams and focus on those doing good work, and there are lots of both in Australia!

These checks are focused on determining the true status of the startup rather than ‘is the market big enough’ type questions which a typical investor would ask.

Now before we start let us be clear this is mostly applicable for B2C, B2B is very difficult to do due diligence (DD) on without talking to the ‘clients’. A B2B startup could be killing it and not even have a website. Actually this is what makes B2B startups so dangerous, unless you can actually speak to the clients you are basing your DD purely on what the founder is telling you.

Founders are generally slightly delusional and for good reason, they have taken huge risks and poured a chunk of their life into a project. They will say what they need to, this is known as hustle aka fake it till you make it aka white lies aka bending the truth aka omitting certain pieces of information.

Because everyone else is doing this, you need to as well, and for this reason I feel I am qualified to write this article!

Some basic rules:

  • Assume everything is probably false until it has been substantiated;
  • Any numbers or metrics quoted are probably at the maximum they ever were;
  • Part of what you are trying to spot is lost founders, the business could still be based on an awesome idea with a massive demand;
  • These checks should be used to help startups, as I mention the fake it till you make it culture often pushes people to the point of outright lying.

It’s probably also worth saying that when a startup pitches to an investor, they want you to be good. They want you to be their next deal, they are probably as desperate as you are for investment but for their next deal. But they also don’t want to get burnt. This article is not written for investors specially, but considering a few of the startups I have seen funded over the past 2 years, some of them could have seriously benefited from this article and saved a tonne of time/ investors money.

Let’s get down and dirty into the checks. You need to pick the ones that are relevant to the business.

Cautionary note: This is NOT designed to be a DD checklist for startup founders, or investors, it’s just meant to help people understand the status of any startup!

General Situation aka The basics

1) Search for them in Google

2) When was the domain registered?

Tools: http://whois.domaintools.com/

If com.au then it will have an ABN: http://abr.business.gov.au/

3) Are they incorporated?

4) 5 minute landing pages

The same also applies for what I would call a fancy landing page, i.e. they have an About page, Team page, FAQ, Press, &c. This probably another 2–3 hours work and is meaningless.

5) Is there even a product yet?

6) Are there users yet?

7) Are there paying customers yet?

8) When was the first mention in Google?

9) Is this a re-invention of a previous business/ idea that founder is obsessed with?

10) Is this a clone of a similar business in the US or elsewhere?

11) Time from full time to launch, if more than 6 months then warning signs?

12) Is founding team full time? What % of staff are full time?

Ideally you want 2–3 founders, and those founders to be full time 👊.

A founder friend of mine recently told me he had 70 staff, turns out there are actually just writers for a content site, mostly working on a per article basis, this is a bit like Uber calling each of their drivers staff.

13) Overly large or ‘Rock Star’ Advisory Board

14) Was there an MVP, where is the validation?

15) Why did the founder start the company?

Try and determine if they actually experienced the problem first hand of if they ‘thought it was a good idea’.


16) Background

17) Fake roles, e.g. Google Consultant

18) Previous startups aka projects

19) Cereal entrepreneurs

20) Where do they live?

21) Life situation

22) Still studying?

23) Do they have any other startups?

Capital Raise

24) Back door

25) Round not closed yet

26) Personal money?

27) Founder not willing to take any personal risk

28) Is part of the raise debt, or even revenue?

29) Is founder just extremely good at raising?


30) Who is building the product, is it being outsourced, is there a CTO?

I am quite vocal in being against outsourcing for tech startups because 1) their drivers are wrong 2) development never stops and 3) you won’t learn as much.

31) Is there a beta or pre-launch version?


32) Alexa

Alexa also tells you basic stuff like bounce rate and return visitor %age, which is very rough, but gives you an idea of whether users are returning or not.

33) SEM Rush

34) MAU

35) Site content, market places, public metrics

  • Real vs imported (common to scrape other sites to create profiles)
  • Active (try sending one a message)
  • Growing (check a cached page from a month ago, is it the same, then growth is fake)

36) Ambassadors/ Evangelists

Check if they have a referral scheme (e.g. the SWS one), and if they do search online for that URL. This gives you an idea whether the product is good enough for people to actually bother doing referrals.

37) Use Wappalyser


38) No. downloads

Typical app metrics which might be surprising to some (may vary…):

  • Installs to open ratio(also known as app units on iTunes): 50–70%
  • Active users vs installs: 2–50%
  • Reviews per download: 1 review per 100 downloads

Result: Installs != to active users!!!

39) No. reviews (can be fake)

40) Bad reviews

41) App analytics websites

42) Actually use the app!

Growth aka Marketing


43) What are their main channels?

If a founder tells you they are going to attract users by social, ads and content marketing, this is a bit concerning, because it means they haven’t really spent much time on growth.

44) Do they have a growth framework?

45) Are they advertising?

46) Are they spending money on ads to collect emails?

47) Ads without a paid product?

How many high growth startups do you know that used ads to grow in the first 2–3 years?

48) How diverse are their channels?

49) The state of their content marketing

There are a few possibilities with content marketing:

  1. Epic content + extensive distribution channels = GOOD
  2. Generic content + extensive distribution channels = Potentially good
  3. Epic content + poor distribution channels = Distribution is harder than content IMO!
  4. Generic content + poor distribution channels = Not good

50) Content marketing without any real understanding?

I know I say this as I write a blog post on a plane, but in this case I’d just be watching a movie instead and its quite fun🙊.

51) Desperate or untargeted PR in hopes of referrals, e.g. startup founder talking about something irrelevant to the business

Now what is even worse is founders who think that becoming a ‘thought leader’ will result in significant user sign ups. This is much harder than it sounds. One is assuming that the people with the problem you are solving are also reading the publications that cover the same topic. An example for SWS would be me becoming a fintech thought leader, but turns out most of our users don’t even know what fintech is, they just want to invest better. I can get heaps of user signups from getting into the press talking about fintech, but those users are of a low quality and convert badly.

52) Collecting email addresses as part of a vanity metric

53) 🏆Retention🏆


The only thing that corporates love more than hiring consultants is partnerships with startups. It makes them look and feel all innovative. In the corporate world innovation is regarded as a sort of STD that rubs off on people. In all seriousness corporates love to partner with startups because it keeps the board and investors happy, it’s an achievement that is very achievable but means nothing.

I am also speaking from experience. We ink’ed a partnership with a certain large Aussie bank, that in the end it fell through. People still ask me about it regularly, 0 users.

53) What is actually involved? Did they just sign an MOU?

54) Marketing stunt

55) Is founder good at signing partnerships


56) No. likes/ followers, are they fake?

57) Likes/ Post ratio

58) Do they speak the same language as the startup?

59) Are they getting shared/ retweeted?

60) Complaints

Where’s the money Lebowski??

61) Real source of revenue

We won a Citibank contest in 2015 where we received $35k as prize money, this was awesome but it’s not real revenue!

Another common ‘trick’ is to include the amazing Aussie R&D tax rebate in your top line, if your startup is burning $500k+ a year on dev work then this number can be quite significant!

62) Real revenue vs Equivalent Annual Revenue

63) 80/20 e.g. $500k revenue but $250k from one client

64) Cash flow that is not real

65) Burn rate

66) Cap table/ Who owns the shares, do core team have equity?

In Conclusion

In total the checks above would take quite some time to execute, and I don’t recommend using them as the basis for a DD checklist! But if you select the relevant ones you can quickly get to the bottom of what status a startup is at, and then it is up to you to help them from there!

CEO\ Founder @simplywallst, semi pro windsurfer

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store