By Kay in How Do I — Jul 29, 2023

Kay how do I choose which startups to work with

A guide for creatives and developers

[revisiting this blog originally posted @ Medium on 17/06/22 with some updates of new things I learned since as I dive back into the market and meeting with some potential startups lately]

Hellooo my lil’ bunnies in today’s too-long-to-read-while-procrastinating article we are gonna learn how to think & ask questions like an investor and how to choose which startups to work with (as if we have that many options in the first place)

Think like an investor

Your time is your money (what an original line to start with). You will be investing even more in the company than a startup Investor would: your time, your soul, your blood in case that company is AlQaeda. You will be investing a part of your life to the cause of the company.

It’s your and only your job to make sure you’re investing it in the right place. You’ve to be even more conscious than an investor here because unlike investors who only have to be right a few of the times to make profits, and can afford to be wrong around 80% of the time, you simply can’t.

What kind of investor are you?

As a prospective investor of your time, you need to ask yourself, which kind of companies are you comfortable investing in:

Are you comfortable as a seed investor investing in startups at the “three people in a garage with no social life” stage, or are you a late-stage investor, who wants to join in when the company has a proven track record?
Do you want to go in at an early stage when there is less structure and have more say in shaping the product and company?
Are you a high-risk high-reward young hippy investor or do you want more safety in your investment?
What does your time investment portfolio look like? Is there a baby, a wife, some parents, and the “responsibility” baggage in there or are you the lucky “young nerdy ass” fresh out of college and mostly lonely with no social life?

It all boils down to understanding your personal preference and your risk appetite, and your life circumstances.

Do a founder’s audit

Leadership is one of the most important things to look for when you’re joining a team. You need to know who’s the captain, who’s in charge. Talk to them to get a handle of their personalities, their background, their motivations, and their vision for the company.

This individual has a story — explore it. They’ll be the most influential people in shaping the company, and your job, you’ll be spending a lot of time with them. You’ve got to be excited about working with them.

It’s difficult to evaluate startup founders using traditional signals like college or work history. In fact, the kind of experience that looks good on a resume can be a negative signal for being suited to founding a company. Rising up the ranks at Google might mean you can only thrive in a well-structured environment working on a product with millions of users. Neither of those conditions apply to startups.

That said here are a few parameters to look for

What are their motivations for building the business
Do you admire them? Do you trust their judgement? Do you appreciate their charisma?
Would you be proud to have them as a peer?
Can they do their own sales?
Do they know their accounts, numbers and KPI’s well?
What does their track record look like?
Feel out the dynamics, and relationships between co-founders. Did you know that co-founder disputes were the top cause of startup death during a Y Combinator batch?
Do they understand the market landscape and the trends in their industry?
How well they know their customers? Have they ever met them?
Can you spot a spark of madness that is constructive, that is being channelled in the right directions?
In early-stage startups look for signs of strong leadership. I believe early-stage startups work better as benevolent dictatorships. You want at least one of the founders to have strong product opinions and be the final product decision-maker. Early on, speed of action matters most to a startup and decisiveness is a good trait in startup founders because it creates motion.
And the most important one: Do they like pineapple on their pizza?

If the answer is positive to most of the above questions, more often than not, you’re on to a winner.

Get to know the team.

This is where the gossip matters. Usually around the third round of interviews ask for a coffee chat or an interview with the team members. They’ll provide valuable insight into the company and may know about any red flags or major issues which you might not have learned from the founders.

The intel from them is as valuable as it is hard to get. A “how’s the weather” chat won’t likely spill out the beans. You have to ask the hard question to crack them like:

What are the biggest weaknesses of the founders?
How are the conflicts handled?
What are the major challenges the company has faced so far?
Do their are do the founder get along, with themselves, with the board…
Is it a productive and a respectful workplace?
Also, try to get a sense of the company’s culture:
If an important work-related issue crops up on a Friday night, how quickly do people respond?
How many people just wait until Monday?
How much respect do they have for the urgency of the situation, for the immediate needs of the business?
Where do they see themselves in the future of the company… say in the next three years?
What’s their motivation for joining the company?
How aligned are they with the leadership?
What’s their vision for the company?

You want them to be unflinching in their answers. Be on the look for what I call bullshit answers: “Everything’s perfect, We have no flaws, We all believe in a United Europe”

Also feel free to ask questions regarding your profession and what are the processes, how they go about solving problems, how ideas are generated, and how work is assigned. If they are from the dev world ask them “Tabs or Space?”

What does their business model look like.

This is one thing which you might have to ask yourself, how important it is for you and how it relates to the work you might be doing

In my case, it’s one thing that I am a bit soft on, because part of what I do in the early stages of my job is helping companies build and refine them. And I know from past experience that this is one thing that will change the most in a startup’s journey because:

“Markets change and if you don’t change you DIE.”
<end chord arpeggiated in a sort of Disney way to really hammer the point home>

The only constant thing in a startup journey is change. If you see that they are frequently altering / updating / changing their business model quickly that is a good sign and shows their nimbleness and agility like a battleship or a rabbit. Still here are a few things to sip through when trying to understand their business model.

Are the a productized firm or a service firm?
How they market their product? Where do their customers find them?
What are product/service offerings?
What do their customers buy?
What don’t they buy more?
What are their sales channels?
How scalable is the business? Is it one of those high-growth high-scale tech startups or one of the keep it low-key boutique startups?
What is their product distribution strategy?
What is their go to market strategy, customer segmentation strategy…

I am just throwing words at this point, but you get my point.

The Competitors & The Markets. What about them?

You need to look at how well they know their competitors. One of the top 3 reasons why startups fail according to this report is either they get out competed or there isn’t a product-market fit.

Are the blind to the markets and competition?
Is there a big gap for this business in the market?
What’s their positioning strategy?
What makes them the one and only in their category?
Is their product better than the competitors? Why?
Is this market growing?
Where areas are they behind from their competitors?
Where are their competitor's weak spots?
How well they know their competitor's customers?

Now, this is an area where the thousands of dollars you spend in learning this cool hip thing called Brand Strategy and learning how to do competitive audits, market research, audience research comes in handy. Since I saw a lot of startups (even the ones with fancy VC labels) either were a) Too lazy to do it or b) Didn’t know how to go about doing it or c) Totally had done it but “just in their heads” So yeah I eventually had to learn how to do it. Talk about spoon feeding babies.

Now if you don’t know how to do it. I’d say… Learn it. Start googling these terms. Or if you’re too lazy and don’t wanna pay attention to this “useless mumbo jumbo” make sure somebody in the company does. How… by asking questions, lots of them.

What story do the numbers tell?

This is where a little bit of knowledge about accounts and financial terms comes in handy. Now you don’t have to take an accounts college course for it, spending a weekend googling “financial terms in the startup ecosystem” will do the job.

Now the data and the numbers you’re going to look for aren’t likely going to be public, so you probably will have to pose questions directly to the founders. Since the job like most startup jobs will likely entail a reduction in your regular income, along with some equity participation in the venture therefore it is important that you understand the probability of success and deepen your understanding of the potential tradeoffs in accepting the offer (why am I italicizing everything).

Ask them to send their pitch deck and if they wanna make you sign an NDA just to look at it, take my advice and run, run as fast as you can. Don’t even dare to look back.
Do they have some kind of financial model you can look at?
What is their sales efficiency? Look for things like customer lifetime value, customer acquisition value (usually around 1/3rd of lifetime value)
What is their Monthly Recurring Revenue, Annual Recurring Revenue look like.
What is their customers churn rate (no. of customers lost / customers @ beginning of period)
How long is their current runway gonna last? What is their burn rate? What are its current sources of funding?
And most importantly what does the growth rate look like?

Don’t be fooled by big absolute numbers. Look at the growth rate. “A startup with $1 million in monthly revenue which has been flat for the past year is less exciting than one with $100,000 in monthly revenue that was at $0 six months ago”

To understand the growth in more detail, dive into your industry-specific metrics. Don’t be fooled by rookie vanity metrics like sign-ups, app installs, and beta users… what matters is things like conversion rates, cost per customer acquisition, and things like that.

For example, if it’s an app-based business the metrics you might wanna look for might be:

Monthly Active Users (New, Lost, and Active)
campaign start date
app downloads and monthly increase in downloads
organic downloads and paid downloads
cost of acquisition per download
App Store and Google Play Store Revenue 30%
Average Customer Aquisition Costs
Is it subscription based?
• Plan pricing levels
• % of customers choosing each plans
• Estimated Average revenue per user
• Churn Rate
• Expected Lifetime Value
• % of subscriptions billed annually, quarterly, and monthly
Conversion rates
• Active users converting to a plan
• Effective Cost Per Acquisition from Paid Ads
Ad Revenue
• Sessions per month
• Average session time
• Active Minutes per user per month
• Ad Impressions per minute
• Ad CPM (cost per thousand impressions) (2$ Google ad sense)
• Ad revenue shares

Refer to these 20 min videos by Slidebean to learn more about what metrics to look for based on the industry you’re targeting or working with.

I know to understand these terms and making sense of it might seem like a lot of work but it will be all worth it. They might help you determine if there is a product-market fit and if the company has good traction.

Better worry about the financials before than after joining the company.

They might help you strike off the top two causes on the “why the startup might fail” list

Do you feel the chemistry?

This is one of the most important factors that no one other than you can decide.

Ask yourself “Why am I really doing this?” Some do it for the credential and validation or the fact that they hate their job while others join it because they realized it’s a cool thing to do after consuming a few the headlines on TechCrunch.

We all have some form or the other of these “Mental Projections” that we build like the one in 500 Days Of Summer. The sooner you understand them, and make the unconscious conscious, the better it is. The first step in deciding is to manage the vanity that’s in all of us, and not be blinded by the herd.

Do you possess the emotional maturity and psychological readiness to tread the ups and downs deep in the startup trenches?
Will you be able to cope with the lifestyle changes and the personal and family pressures?
Do you really believe in the idea and the vision of the company?
Can you really be a valuable asset to the company?
Are you realistic and rational when it comes to evaluating both the potential upside and potential risk?
Are you really excited to work with them?
Is the mission worth dedicating my time to?
Will I enjoy working with these people?
Does this company pay fairly?
Is there any spark or chemistry?
Can you feel it in your jellies?

These are some questions to ask yourself. Only you know the real answer to them.

Ask the right question.

In the end, it all boils down to asking the right questions. Treat the interview like a date. Be intellectually curious and see how well they can explain the product choices they’ve made, how the markets works, and who their competitors really are. Know exactly which questions to ask someone to call bullshit.

I particularly like asking what has surprised them since starting the company and which early assumptions turned out to be wrong. I would be suspicious if they claim every assumption turned out to be completely right.

Make sure you are asking the right questions in order to mitigate your risk and maximize your chances of success. And even before all of that, ask yourselves the right question and don’t lie to yourself.

Above all, don’t compromise.

It won’t be hard to find startups that are hiring, but finding the right startup will be. If you haven’t found the one keep looking, don’t settle or compromise. If you think you might not be the right fit for them, vet yourself out. Remember there is a start-up out there for everyone who wants to join one. If you can’t find the right one maybe you’re just not looking at the right place.

To make your jobs easier look for companies that have already received investment from a fund. It usually shows that investors have become comfortable that the company has positive prospects. In essence, they have asked a lot of the hard questions for you and felt comfortable with the answers. But you still do your job mister. Remember even good investors end up investing in poor/unsuccessful companies.

That said here are a few places to look:

You can also see companies based on the investors here. I am just going to list the names now, you can just check their Job Boards:

Conclusion.

Predicting startup success is hard, and even professional investors fail at it most of the time. Sometimes you just have to take your chances and take a leap of faith.

I’ll keep adding and updating this article to make it more comprehensive. If you have found any useful information in it. Feel free to bookmark it. And don’t forget those smack those juicy hands, not the real ones… the ones on your screen.