Evaluate a Startup Like a Venture Capital (VC) Investor


The prospect of making your next tech career move is exciting! With an abundance of startups, each with impactful problems to solve, there are ample opportunities for career growth.

At the same time, making a decision (about where to go next) can be stressful. There’s so much, or sometimes too little, information out there for you to absorb. For whatever information you find, you need to weigh and distill inputs to make a confident decision about where you’d like the next step in your career to be. But, how do you move quickly and decisively evaluate these inputs to know if you’re making the right move?

We Talked to the Expert

To answer this question, we turned to someone who evaluates startups for a living: Turner Novak. Turner is the Founder of Banana Capital, a venture capital firm that invests in companies from Pre-Seed to IPO. We hosted Turner for a workshop where he shared his process for evaluating startups through a VC lens, and even walked us through a couple of examples live. For community members, you can view the workshop here. For everyone else, we took a moment to lay out the top tricks and tips from Turner below 👇

DISCLAIMER: Turner is also an investor at The Commons

The 3 Big Things

You should think about evaluating a startup in the same way you think about investing your own money in the stock market. Except, instead of being able to diversify your portfolio between multiple funds, you really only get to choose one (company) for the next step in your career. So, you should probably be even more diligent in accepting your next role at a startup than you would be with your regular investment portfolio.

And your evaluation should really come down to three main things; the product, the founders, and the company.

1. Use the Product

The first question is simple; does the company have a good product? And the easiest (and most effective) way for you to answer it is… just to try it out.

Open up the company's website. If they have a demo (or a free trial) on their website, try out the product. And if they don’t, submit a request for a demo as if you’re a potential customer exploring your options.

As you use the product, ask yourself questions like: Is it easy to use? Would you pay for it? Do they have customer testimonials… or customers you can reach out to directly? Can they acquire and retain customers? Is it better than existing competitors? And if not, can you get a job interview with the competitors instead?

2. Know the Founders

The founders are driving the ENTIRE business. Getting to know the founder (in every sense) helps you determine if this is the type of company you want to be a part of. Yes, there are also incredibly valuable employees, but the founders hire and fire talent, set the company culture, and drive the product acceleration. How much effort, and how knowledgeable founders are, matters A LOT. It’s more critical to get to know the founders directly in earlier stage startups. 

What are you looking for? A few things;

  • Bias Towards, and Velocity of, Action: How fast are they releasing decisions? Are they willing to fail fast and learn from their mistakes? Do they encourage their team to embrace trial by error? 
  • Background and Experience: You’re not just looking for what university they graduated from. You care more about previous work experience, and previous entrepreneurial ventures. A founder who’s launched a business before, even if unsuccessfully, is more likely to be successful this time around.
  • Online Presence: Are they active on social media? It doesn’t matter how many posts or videos they share (in fact, sharing too much can come across as ‘performative’, and it’s technically a distraction from their actual job). What matters most is engagement with their content and/or what they engage with. Use this to get a gauge on how embedded they are in the industry or focus of the company.

3. Dig into the Company

So, you know the product and the founder(s). Now, you need to evaluate the entire business. Some questions you should ask yourself;

  • What Has the Company Been Up To? Check the news, especially places like TechCrunch, Crunchbase and Betakit. Be sure to check out the company’s socials too. Are they launching new products often? Do customers engage with company posts? Are they raising new rounds? See what’s out there to understand their traction.
  • What’s the Runway? How much has the startup raised? How many months can the company sustain headcount and other expenditures ‘as-is’? What’s their plan for future capital raises, if any? 
  • What’s the Valuation? Ideally, funds get diluted 20% each round. As the company raises more money, the valuation formulation becomes weaker. That’s why it’s important to look at how many financing rounds the company has successfully (or unsuccessfully) executed. Ideally, you’re looking for a company that has obtained funding rounds every two years. 
  • Who’s Funding It? Have you heard of the funds or angels? Are the funds industry-specific or are they generalist? Did the same fund lead two rounds? Look into their funders’ track records, but be wary not to blindly put too much emphasis on this alone - it’s only one factor in your evaluation of the company. 
  • Layoffs? Don’t worry too much about headcount reductions less than 10% (could just be natural attrition or poor performance). What do employees say about working there?

Use Every Tool Available

It’s time to do some sleuthing. Use every tool available to fully understand the product, founders and business. Here’s a few good places to start:

  • Reddit: One of the easiest ways to learn what people are saying, about a product, company or founder, is to search for it on Reddit. Most applicable for B2C companies. 
  • Glassdoor: The best way to understand a company is to work for it. The problem is, you haven’t yet. So, check out Glassdoor reviews to see what other employees are saying about their experience.
  • Crunchbase: This is an excellent tool to learn more about the company's financial history, including its investing rounds. It can help you to see who is invested in the organization. 
  • SimiliarWeb and SEMrush: These tools can provide web traffic, relative to competitors. Don’t underestimate this. It says a lot about how many people NEED this problem to be solved. In other words, a strong demand indicator.
  • LinkedIn (and Other Social): Work through LinkedIn comprehensively; both the company, its founders and employees. Message mutual connections that you have with someone that works there. 
  • Podcasts: Many founders and CEOs will do podcasts as a way to build their brand. This is a good way to hear their point of view in their own words.

Looking for More?

That’s a quick recap of what we covered, but if you’re looking for more, members of The Commons can view the workshop here.

Interested in more?
Mentor Spotlight: Aritra Ghosh
Mentor Spotlight: Aritra Ghosh
Meet Aritra, Product Manager at Azure (Microsoft) and Product Mentor at The Commons!
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