What are the best signals from an early stage start up?

Originally answered on Quora

There is no formula for successful startup, which means that there is no ‘surety’. The only things is increased probability. This is why people who invest money split it put in different startups (or different investments) to de-risk themselves.

Having said that, coming to the question- Short answer is — “It depends”.

1. At the earliest stage, the strength and completeness of team is the surest signal. The team should be well rounded with most (if not all) skills needed to build the startup. In different startups, this would mean different. If it is a software tech startup — solution architecting, design, UI/UX, development, deployment, marketing, sales and customer support are the major functions. The maturity of team also goes with this. For eg; if 3 founders have 33.3% equity to each of them, then, to me, it says that these 3 can’t sit down and have a difficult talk about equity — a red flag in maturity.
2. At the next stage — it is about idea, product stage (prototype or not), Industry or Market. Here if the idea is interesting enough, if there is something as demo to show or play around and if the product is shaping into a growing market or catching with a trend, then it is good. If there are paying pilots, then all the more better.
3. The next stage is about users/ideally customers AKA Traction: From here on, it is more or less about the numbers. Number of users, number of paying customers, Cost of Customer acquisition (CAC), Churn rate, projections for rapid growth etc etc. If the numbers looks good as per industry standard or better than that, then it sends a signal.

PS: In every stage, all the above criteria + new ones will get added.

Outside the above ones which are obvious/tangible ones, there are some other strong signals of potential of startup

1. Exceptional Hiring: When a CEO or founding team consistently hires people better than themselves, then it sends very strong signals.
2. Evidence of Grit: When was the last time the members of the founding team failed, stood back, failed again and stood back up — quickly and efficiently.
3. Good Company culture: Culture is mostly intangible. But there are some tangible signals. For eg — ~0% attrition rate. OR When an intern comes back after an year saying No to all big jobs and joins you OR when each of your interns go out and start something of their own. (All the examples are from our personal journey at Fastest way to know everything about your contacts).
4. Hardwork & sacrifice: there is nothing that replaces slogging in a startup. Are these folks putting 25 hours every day to get their startup to take off? Have they said No to a big fat pay check for a meagre amount?