Tag Archives: Founders

What I Look For in Startups

You’ve been meeting with investors day after day. You get a lot of “very interestings” but no actual checks.

What are these people looking for?

Today, I thought I’d explain what I look for in a startup.

As an angel investor, I invest in about 1-2% of the companies I see. Here’s how I choose:

1) Are you solving a big problem? Take Uber: it gets you from anywhere to anywhere, anytime, easily.

Mobility is a huge problem. Any technology that can make it easy to get places has a giant potential market.

What is an example of a company that isn’t solving a big problem? Imagine a better way to search tweets.

That’s a feature, not a product. It’ll probably get copied by Twitter or Twitter will buy it for a small sum.

2) Are you growing revenue 20% month over month? I want to see clear signs that your vision is shared by customers.

Dollars in the door are the best sign there is. I find about 2-3% of seed stage startups are growing this fast.

If the company is pre-revenue, I would also find a similar growth rate in users quite persuasive. But revenue is best.

The greatest companies of today, like YouTube, had incredible growth early on. That’s what I’m looking for.

3) Is the product awesome? If there’s any way for me to use the product, I always do so before investing.

Maybe you have great early growth, but if the product isn’t solid, it may be hard to sustain that pace.

If I can’t use the product (most B2B SaaS, for example), I ask for a detailed demo. I also read every review of the product I can find.

3) Is there good founder/market fit? If you used to work on M&A at Goldman Sachs and you started a company to help people find sustainable clothing, I’m going to have a few questions.

Why would you start a business that is so far removed from your background? Perhaps you have solid reasoning, like a long-term commitment to environmentalism via volunteer work.

Or maybe you’re just in it for the buck. I have nothing against making money, but starting a company is so hard that if the motivations are only pecuniary, you will likely give up.

4) Are you raising at least $1 million? Most companies I invest in are raising $1-3 million seed rounds.

Why does this matter? Companies that raise a seed round of at least $1 million are far more likely to be successful, per a Crunchbase analysis.

A big round means you can hire lots of developers and sales people. That lets you get ahead of your competitors, fast.

When I see companies raising a round of $250-$500k, I often think this isn’t enough to move the needle.


I hope this helps clarify how investors pick startups. Other investors may have different processes, but I think you’ll find a lot of similarities.

Best of luck and happy fundraising!

More on tech:

The Original YouTube Investment Memo

How Startup Founders Turn Investors Off

Why I Just Invested in Gauge, the Best Way to Sell Your Car

Photo: “Historical Documentation Defenestration WHY Sign” by Lynn Friedman is licensed under CC BY-NC-ND 2.0

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Save Money on Stuff I Use:

Amazon Business American Express Card

You already shop on Amazon. Why not save $100?

If you’re approved for this card, you get a $100 Amazon gift card. You also get up to 5% back on Amazon and Whole Foods purchases, 2% on restaurants/gas stations/cell phone bills, and 1% everywhere else.

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

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The Top 3 Startup Pitch Mistakes

You’ve run through your deck a hundred times. You’ve practiced pitching to your cat.

He declined to invest.

Startup founders work incredibly hard to pitch their dream to investors and get funded.

As an angel investor, I see a lot of presentations. So, I thought I’d share the 3 biggest mistakes I see founders making:

1) Not clearly explaining what the startup does. If I don’t understand what your startup does and why within the first minute, you lost me.

Investors are people too, and struggle with attention, especially given the number of presentations they see. A demo day I attended last week had 17 companies presenting.

Don’t lose your audience! Clearly state exactly what you do and what problem you’re solving, ideally within the first 30 seconds.

Being able to clearly and concisely say what you do also helps you attract customers and key employees.

2) Not showing a growth trend.

Don’t make us guess! If you’ve got a strong growth trend in revenue or users, put that graph on the screen.

But don’t rely on our ability to read a graph that pops up for 20 seconds on a slide. Do the math for us.

If you went from $2,000 in revenue in August to $5,000 in November, use a tool like this to find your compounded monthly growth rate. In this case, it would be 36%, which is outstanding.

I saw a founder do this well at a demo day this fall. 6 weeks later, she raised a $3.5 million seed round.

This stuff works!

3) Not taking questions. If at all possible, you want to take questions from your audience.

Even short presentations can allow for this. Some demo days might provide just 7 minutes per startup. But you can present for 3 minutes and take questions for 4.

Every investor has objections you have to overcome before they invest. Give them a chance to overcome those objections by taking their questions.

Answer clearly and concisely. You should be taking about the same amount of time to answer the question as they took to ask it, no more.

I hope this helps! Fundraising can be exhausting and nervewracking, but if you follow a few simple guidelines, you can succeed.

Best of luck!

What have your biggest challenges been in pitching investors? Let me know in the comments at the bottom.

More on tech:

An Investor’s Dream Cold E-mail

The Biggest Challenges for Startups Now

Why I Just Invested in Kippo, Where Gamers Find Love

Photo: “Wrong Way Signs” by Arizona Department of Transportation is licensed under CC BY-NC-ND 2.0

If you found this post interesting, please share it on Twitter/Facebook/etc. using the buttons at the bottom of the page. This helps more people find the blog! 

Save Money on Stuff I Use:

Amazon Business American Express Card

You already shop on Amazon. Why not save $100?

If you’re approved for this card, you get a $100 Amazon gift card. You also get up to 5% back on Amazon and Whole Foods purchases, 2% on restaurants/gas stations/cell phone bills, and 1% everywhere else.

Best of all: No fee!

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order.