Nick Bereza is the founder of Unimatch AI™️ — an AI-powered matchmaking and crowdfunding platform for venture investments in startups.
Investing in early-stage startups can be exciting and rewarding—but risky. As the former executive director of a successful venture fund built from scratch, I’ve reviewed thousands of early-stage startups and helped found 13 of them.
Based on my experience, here’s a guide to evaluating startups and key parameters to focus on. It is based on a scoring model by my organization with 220 weighted parameters. Below is a simplified version.
Assessing The Idea And Market
This is where you should start answering a few critical questions. Without this, I believe everything else is irrelevant:
• How well do I understand this market, and am I interested in it?
• What’s new and unique about this idea? Why could it work?
• Who are the users of this product, and what is the potential market size?
The Founder(s) And Team
After assessing your idea, your founding team is arguably the most important aspect. Startups, especially early-stage ones, typically pivot their business model three times on their path to becoming serious companies. Trends change. What remains constant are the people behind the company.
To maximize your investment’s success, I recommend you evaluate and answer these six questions about the founders:
1. What are the founder’s past achievements? Some examples of what to look for include:
• Successful exits.
• Revenue, ARR or fundraising milestones.
• Participation in accelerators.
• Notable personal achievements (e.g., sports).
2. The founder’s network and assets:
• Followers on LinkedIn, X (Twitter) and YouTube.
• Media publications, interviews and mentions.
3. Do they have relevant experience and expertise in the startup they’re building? If not, it could take at least a year just to learn the industry.
4. What meta-competency makes this founder stand out as the best in the world at something?
5. What critical skill sets do they bring that are relevant to a startup? Some to look for include:
• Fundraising ability.
• Team-building expertise.
• Technical proficiency.
• Managerial skills.
• Financial acumen.
• Legal knowledge.
• Product development skills.
• Marketing expertise.
6. What is the team’s professionalism and motivation like?
A team reflects its founder. Strong, talented people attract other strong, talented people. Evaluate the level of the C-suite: Are they junior, middle or senior-level professionals? How motivated and passionate is the team about changing the world with their product, or are they just working for a paycheck?
Product And Business Model
This section is dynamic, with variables ranging from geopolitics to technological cycles. The initial idea and product will likely evolve significantly over three years.
If the market is promising, the founder is smart and the team is motivated, they should be able to find the right product and business model through hypothesis testing. However, consider these nine questions:
1. What problems does the product solve?
2. How does the project plan to generate revenue?
3. What’s the “secret sauce” or unfair competitive advantage?
4. Why will this business model work?
5. How many customer development interviews have been conducted?
6. If the business model fails, what hypotheses and plan B are in place?
7. Is there a product roadmap?
8. Has a competitive analysis been conducted?
9. How many other startups are currently building similar models? What are their results and successes?
Competitors
A major red flag is if a founder is unaware of their competitors or can’t explain how they differ. For example, for one of my startups—a matchmaking and crowdfunding platform for creating investment syndicates—I have spent a year and a half analyzing competitors.
Your product team should constantly monitor the competition, always thinking about what you can do better for your users. Be sure to ask:
• Who are your largest competitors, and what are their results?
• What’s their revenue or ARR?
• What’s their market valuation?
• What’s your competitive advantage?
Traction
If you’re not the first investor the founder has spoken to, where has the startup already progressed?
If a startup has been around for a year and has accomplished almost nothing, that’s another huge red flag. It suggests the founder or team doesn’t truly believe in the project. I find that a passionate founder will find the necessary resources and generate tangible results, even without money.
Evaluate the specific results achieved so far:
1. How many product downloads, registrations and active users are there?
2. Is there a product roadmap, and how much has been implemented?
Marketing
Even if a team creates a brilliant product, it’s not enough to ensure users find it. A startup should have a go-to-market strategy. Here are some clarifying questions you can ask:
1. How do you plan to attract users, and why will this strategy work?
2. If there’s traction, what’s the customer acquisition cost compared to lifetime value?
There is a famous economics concept: If the cost to acquire a user exceeds the revenue they generate over their lifetime, the situation is clear.
It’s also essential to ensure the startup is accurately calculating these figures. In my experience, very few startups have the ability to work professionally with analytics and get the numbers right.
Finances
Understand the startup’s financial picture. How well does the founder manage finances?
Startups often lack financial planning, which is a massive red flag. How can they return on your investment without basic financial literacy? Here are key questions to ask:
1. What’s your burn rate, and what drives it?
2. How much have you raised, and what are your plans for future rounds?
3. How much runway do you have?
Investors
Current investors reflect the founder’s caliber. Top-tier investors back top-tier founders capable of delivering results. If you’re not the first investor, check who has already backed the project. You can ask these questions:
1. Are there any lead or smart investors on the cap table?
2. Have they participated or plan to participate in any accelerator programs?
This is a simplified version of an initial analysis of a project. Each section has nuances and subcategories to evaluate. A thorough, in-depth analysis can take a week of full-time work.
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