How can you evaluate startup pitches with confidence? (2024)

How do sharp VCs choose startups?It's not just charisma or current stats. It's about vision.A founder's clarity on their industry's future—5, 10, 15 years ahead—is paramount. Without this foresight, they're navigating blindly. Merely observing trends isn't enough; they must anticipate them.Confidently invest when a founder doesn't just look, but truly sees the future. For transformational adventures require clear, forward-looking visionaries.Bet on those who see beyond today 💥

evaluating a startup:Problem-Solution FitMarket Size and DemandTeamBusiness ModelTraction and MilestonesCompetitive AdvantageFinancial ProjectionsExit Strategy

Defining criteria can only go so far. If invited to judge a pitch panel an investor can ask for a list of startups prior to do some research before, or join a thesis focused competition. Always important to go in with an open mind--as even a pitch deck may not capture the "aha moment" -- often discovered by an investor's perspective or prior research.

To evaluate startup pitches with confidence, focus on key factors like the problem being solved, the market size, the team's expertise, the uniqueness of the solution, the traction and validation they've achieved, and their financial projections. Ask probing questions, assess their presentation skills, and seek feedback from industry experts. Combine this information to make an informed decision, considering both the startup's potential for success and alignment with your investment criteria.

Here are few basics on pitch evaluation:Market Opportunity: Is there a sizable and growing market for the product or service? Understanding the target audience and market trends is crucial.Unique Value Proposition: What sets this startup apart from existing solutions?Team: Assess the skills, experience, and commitment of the founding team. A strong and cohesive team is often a key predictor of success.Traction: Look for evidence of market validation, such as customer testimonials, user numbers, or partnerships.Financials: Analyze the startup's financial projections and budget. Realistic financial planning is vital for sustainable growth.Scalability: Can the business scale effectively?

I invest in startups that can pay back the entire fund independently. I analyze several areas:💪The team: personal and together work experience, complementary skill set, personal quest 📈Market: its size, growth rate, potential to grow for decades, segmentation 💡Product market-fit: problem, solution, what is the barrier to entry, secret sauce, value proposition, who is the audience 🚀Business model: how does it scale, growth rate💰Exit strategy: how much capital does the company still need to raise, who will buy it and why, founders' goals I never focus on just one aspect. Building a scalable and international business takes much work. I need to be able to determine if the team can make it and if the game is worth my money.

Important to take key fact notes along with real time scoring. Listen intently and use quick stats or other key value components shared by Founders. Your ability to listen and take notes with focus will help find the "aha moments".

Using scorecards provides you with the following advantages:1- You can compare and benchmark performances.2- You get an objective overview of your deals.3- You can use the data to evaluate future deals and explore deals in a much more systematic way.4- You keep a trackrecord of your findings and can access it at any time.So yeah, following a scorecard is necessary and helpful.

Creating a scorecard to evaluate a startup can provide a structured and quantifiable way to assess its potential. A startup evaluation scorecard rates a startup on various criteria, with higher scores indicating a more favorable evaluation:Problem-Solution FitMarket Size and DemandTeamBusiness ModelTraction and MilestonesCompetitive AdvantageFinancial ProjectionsExit StrategyEach criterion receives a score from 1-10, and the total score (maximum 80) helps assess the startup's potential.

Score cards are very difficult to use. Particularly if you are simultaneously reviewing more than one pitch. Also, based on experience, you can say that a pitch idea is worthy or not worthy. To accurately rate the idea for different criteria is very difficult. You can identify a good pitch or a bad pitch, by seeing it. You cannot identify them by analyzing their parts. It has to be done holistically. Typically all pitches will have some flaws. One has to think like applying Occam's razor principle.

Ask questions that matter TO YOU! Way too often, investors turn a blind eye and invest when they really shouldn't. As always, you need first to understand what is important to you and then systematically ask questions to ANY startup you talk to.

Don't be afraid to ask silly questions. The Founders are the experts and if asked with thoughtfulness, they will reward you with insights.

Ask four key questions: 1. What is the company's "North Star"? This is one metric that everyone in the company should be obsessed with optimizing. By understanding this you'll know the company's ambitions and its place in the market. 2. What does a best-case scenario look like? This will give you an understanding of where the company will be if it succeeds and potential exit scenarios. 3. What is the current and future growth rate? This way, you can classify startups as top, medium, or weak.4. What is the company's runway? A short runway creates much pressure to raise capital quickly, which can result in worse round terms. Be inquisitive, and if you need help understanding something, keep asking until you do.

he key questions for evaluating a startup:Is there a significant problem, and does the solution effectively address it?Is the market large and growing, with clear customer demand?Does the team possess relevant skills, experience, and passion?Is the revenue model viable, scalable, and sustainable?Has the startup achieved significant milestones and market validation?What sets the startup apart from competitors?Are financial projections realistic and well-documented?Is there a clear and achievable exit plan aligned with goals?

Ask the founder(s) questions about them. Its always important to see what is driving/dragging them. In Bio/Deeptech the early stages are very tough with little to no financials coming through for years at a time. Knowing more about the founders is key. What pushes them to do something so nuts or are they simply "trying for now" and happy to leave. If it is the latter, one must question funding this "Test run"...Knowing about how the founder has overcome struggles and obstacles will indicate how they deal with these during the build. Even at the later stages (Series A+) especially if an investor hasnt been there during the Pre/seed stage - asking the right qs can help VCs understand how struggles were overcome! All derisking

Triangulating facts and preparing with some non-obvious perspectives give an open experience. Don't be afraid to ask questions; we're all learning together.

When checking references to evaluate a startup:Identify relevant references (e.g., customers, partners, investors).Request permission from the startup to contact them.Prepare specific questions tailored to the reference's role.Contact references with clear communication about your intent.Ask open-ended questions for honest feedback.Inquire about specific experiences and examples.Verify the credibility of references and cross-reference information.Listen actively for red flags.Compare feedback from multiple references.Maintain confidentiality and respect privacy.Consider the source's perspective and motivations.Document information for future reference.Integrate reference feedback into your startup evaluation.

To confirm and enhance the data in a startup pitch, consider reference checks. Request contacts of customers, partners, advisors, or prior investors from the founders. Conduct independent research and connect with relevant sources in your network or industry. Reference checks validate a startup's customer feedback, market progress, team credibility, and investor appeal.

References help. Particularly if the person who gives reference has worked with the founders. Typically entrepreneurs would be able to rate another entrepreneur better. Such references help.

Some pitches may be technologies that evaluator may not be familiar with. Under these circ*mstances, it is important to get subject matter experts opinion.

Feedback, feedback, feedback. Keep an open mind and ask questions. But also remember to help the Founders shine--as they are the true experts.

Asking other VCs in the space is golden. Not only does this share potential deal flow between relevant VCs which strengthens relationships in that avenue. But it also shows why a deal has been passed on or why a deal has been progressed further. We all see things through our own lens. Find lenses which you trust and are willing to share.

A question that I like to ask the Founders is: is there a question that I should have asked, that I did not ask?This does 2 things: a) gives opportunity to the Founder to tell you the strengths and weaknesses of the businesses and space that you missed. b) gives you feedback on your line of questions and suggests next set of learnings for next set of meetings and companies.

This is often overlooked because some consider it as beyond actual scope. Assessing startup pitches is intricate and personal. Seeking input from colleagues, mentors, domain experts, or peers with relevant experience is valuable. Consider participating in a peer review group to exchange views on various pitches. Feedback minimizes biases and enhances judgment accuracy.

Its best to use your intuition to open up channels for additional diligence. In this market environment, processes are not moving as quickly as they used which means you can literally sleep on it for a couple days and then see where you intuition points you re: additional diligence. In one direction, you may realize you have a lot more work to do to understand the nuances of a market you thought was a no-brainer and thus end up passing on an investment or on the other side your intuition may lead you to do some more reference calls on a founder you may have dismissed earlier because they didn't "fit the mold" and then realize they are actually a perfect fit for this startup.

VCs spend about as much time analyzing decks as recruiters spend reviewing job candidates' resumes. I can decide in seconds whether I want to meet with the team or reject the project. Everything comes with experience. I look at more than 2,000 projects a year, and I've already seen most of the things founders write. A great project gets attention right away. Those that are worthless immediately turn on the light in your head. To know if you want to go further with someone, you must define your investment policy. And strictly stick to it. You have limited time and money. So please don't waste it talking to someone you cannot help.

Intuition, however, requires more than casual pattern recognition. Today investors in early-stage ventures have the temptation to apply pattern recognition. This is problematic for a number of reasons, but chief among them is that pattern recognition is the expression of all our biases, many of them unconscious in evaluating things that are new.

Trusting your intuition when evaluating startups can be a valuable aspect of decision-making, but it should be balanced with a structured and data-driven approach. In summary, intuition has a place in the evaluation process, but it should be used in conjunction with a systematic and data-driven assessment to make informed and objective decisions about investing in startups.

I too rely heavily on my prior experiences and exposures to different types of businesses and startups.Though I get a sense quite early as to whether a particular startup (in its current form) will succeed or not, but I always give a benefit of doubt to the startups, by searching for specific examples within founders' pitches to support their scoring on my scorecard. For this reason, I never like the formats popularized by several accelerators and incubators called "Demo Day" wherein they give 2-3 minutes per startup and then 1 minute for judges to evaluate, before moving on to the next startup. Though it saves the organizer's time, but it encourages "pattern recognition" laced with biases during judging, leading to incorrect judgments

Look for what you can't see. A pitch presented by a founder is a well-trained show. A pitch deck shows any startup in all its superlatives. Their goal is to get your attention. Don't treat everything you see and hear as a certainty. Startups often hide inconvenient facts. Sometimes consciously, sometimes simply out of ignorance. To understand a company's weaknesses, you need to see what you can't see. Weak points are easiest to find by asking about the competition, the financial model, product-market fit, or the company's shareholding structure. Start with areas the startup doesn't talk about, and you'll get to what the problem is.

Without any bias ;- Ask on Market potential from profitability angle.- Ask for timelines in terms of burning cash to profitability & analyze the reasons & probability of each of those steps leading to profitability in reality.- Try to understand is the concept is really unique & innovative or the existing players did not touch this as it is commercially not viable concept.- Learn to catch the abnormalities positioned as Unique features. For Ex: If the company doing fraud or manipulation / creating fake sales using Online channels, Affiliates etc, Then try to understand if there is a roundtripping of transaction, linkage b/w marketing spend and sales, review the underlying documents to establish there is a real sale.

Apart from all the other things mentioned above, it is very important to know about the people behind the startup idea. What have been their experience? If there are more than one founder, how is the chemistry between the founders? Do they compliment each other's skillset?In most of the cases, it's not the idea, it's execution what matters. And if the team is strong, they can pull off any idea.

After diligence, the best decisions still rely on trusting one's assessment of a founding team's character, leadership and determination to solve important problems through perseverance.

A key thing to keep in mind when pitching to investors:Down-playing the team and leaving this slide till the very end of the pitch. I argued (and will continue arguing) that the team is the #1 thing investors care about at pre-seed. Then goes the market and traction, of course, but if the team is bad (maybe not literally — they can very well not be well-suited for the idea experience-wise). Consider selling yourselves like the Americans do: adding social proof (companies/clients you worked for and their logos), clearly communicating your unfair advantage, experience, and founding story. Why not put it in the second place?