Top 5 Things to Look for When Evaluating a Startup

Team: most investors agree that the “right” team is the most important element of startup success.

• How do the founders know one another? How do they interact?
• What relevant experience do they have? Have they had any prior successes?
• Why did they start working on their idea? Are they passionate enough about it to have staying power?
• What skill sets do the founders have? How likely is it that they’ll be able to recruit in areas in which they don’t have expertise?

Product: for early-startups, the product often is the company. Second to evaluating the people is looking at what they have built.

• Is the product easily explained?
• How does it stack up against the competition?
• What technology sits behind the product? Does it depend on third-party IP?
• Does the product have the potential to support a defensible business?
• What is the product roadmap? Is the company working on too many features or too few?

Traction: step one in assessing traction is asking whether the company talks to users and incorporates feedback; step two is to analyze data on users and adoption rates.

• What kind of customer interviews did the company do before building the product? How does the product incorporate the feedback?
• Is anyone using the product? Are they users or customers?
• Does the company have revenue? If not, what will it take to get to revenue? To profitability?
• Has the company raised money? From whom? What have they done with it?

Market: experienced angel investors generally look for companies that are addressing growing markets worth at least $1 billion.

• Who is the company’s ideal customer? Why?
• Does the company sell to businesses or consumers?
• How does the company sell to customers? What are its actual or expected customer acquisition costs?
• How big is the potential market?
• Is the market mature or growing?

Competition: startups should not obsess over their competition, but founders should demonstrate detailed knowledge of the competitive landscape.

• Who are the company’s top three competitors? Are there any significant companies that could easily become a competitor?
• Why is the company’s product or approach better?
• What’s the company’s edge — why won’t the competition do what the company is doing?