When you first meet a founder and hear them pitch about their great startup, it can be easy to get caught up in the excitement and immediately buy into the idea. But this is where you should pause and ask yourself and, more importantly, the founder a few vital questions.
The following are the basic aspects that you should consider when interviewing a tech founder for the first time. Yes, interviewing. By investing at this early stage you are basically ‘hiring’ a team leader, so you need to make sure that whoever you pick has what it takes to make the startup work.
Having relevant experience is important, but so is motivation and vision.
Are they committed full time to the project, or do they have a full-time job and run the startup on the side? Do you believe in the potential founder’s vision? Do you get along with them? Can you verify that they’re reliable, trustworthy people?
Your due diligence starts with the team.
Remember, the business model will most likely evolve and change over time. And that’s not a bad thing. What is important is that the business model works to bring in revenue. At this early stage, your main concern as an investor is that the business model has been tested out in the market and is getting some traction.
This can be any kind of forward momentum, but the bigger, the better. For example, perhaps they’ve launched a minimum version of their product and it has gone viral on Facebook, or they’ve made a partnership with some big players that can open up a first route to the market.
Market and industry
If you have a background in the industry where the startup is operating, and understand the market, you have a big advantage. Teams also prefer that their investor has some relevant experience, since this means that they’ll be able to dole out good advice and put them in touch with important contacts.
Another thing to remember is to make sure that the market in which your team is operating is big enough to facilitate quick scale up for the startup.
Is your team’s tech unique enough? Who is the owner of their IP? Are they outsourcing their teams? How much is that costing them? Do they have a CTO (a tech person) who can make all of this happen?
You have to make sure you get the answers to all of these questions, as it will determine the burning rates, and influence future rounds and exit strategy.
The exit strategy
Another important question to ask is: where is this all going? Is your team planning to go on to an IPO or to sell the company?
Unfortunately, IPOs don’t happen that often in the UK, so make sure the teams have a clear and realistic view on this. At the end of the day, you want to get a multiplied value of your shares in at least a couple of years’ time. That is what any startup should aim for.
It is incredibly reassuring if a startup has a well-known industry leader as an advisor. If they have a good name on their board, it means that they will get the best contacts and the best mentoring. It also means that the leader believes in the team because he or she is backing them up with their own name.
Keep these main criteria in mind when interviewing your tech startup founder. Find out if they have clear and realistic answers to at least most of the questions above.
If you follow these steps, you will make a better investment decision – and it will save you a lot of time, money and effort in the long run.