The Four Pillars of Startup Evaluation
The funding landscape has fundamentally shifted. Four years ago, you could raise money with just an idea and a compelling pitch deck. Today, that's no longer enough. As an Investment Committee Member at BADIdeas.fund inthe past, and founder with experience at companies like PandaDoc, Apollo, Wargaming and other startups, I've seen how investor expectations have evolved—and what founders need to understand to secure funding in this new reality.
After evaluating hundreds of startups, I am sharing the assessment process into four critical pillars that determine investment decisions.
Prefer to watch? Check out the full discussion where I dive deeper into these insights:
1. Team: The Foundation of Everything
We invest in people first, products second. In fact, 50% of our investment decision weight goes to team evaluation—and for good reason. We're not just investing in a business; we're betting on people who can navigate uncertainty, adapt to market changes, and execute under pressure.
Here's what we evaluate:
Coachability: Can you take feedback and pivot when necessary? We test this during our conversations. Founders who become defensive or dismissive of market feedback are red flags. The best founders actively seek input and show evidence of incorporating it into their strategy.
Product-Market Fit for the Founder: Do you have genuine insight into the problem you're solving? We prefer founders who've worked in the industry they're targeting or have experienced the pain point personally. This insider knowledge creates a natural advantage over competitors approaching the market from the outside.
Strategic Thinking: Startups face constant uncertainty. Economic downturns, competitive threats, market shifts—successful founders think several moves ahead and prepare for multiple scenarios. We ask questions like: "What happens if your biggest competitor raises $50M?" or "How would you adapt if your primary acquisition channel disappeared tomorrow?"
Commitment and Sweat Equity: We look for evidence that you're fully committed to this venture. Are you working full-time on this? Have you invested your own money? Are you willing to bootstrap through tough periods? If you're not fully committed to your startup, why should we invest?
Personal Values Alignment: Yes, we ask personal questions about background, family situation, and core values. Understanding your values helps us predict how you'll handle the inevitable challenges ahead and assess long-term compatibility.
2. Market: Size, Timing, and Competition
Understanding your market isn't just about knowing it's big—it's about demonstrating sophisticated awareness of its dynamics.
Problem-Market Fit: Does your solution address a genuine, urgent problem in the current market conditions? We want to see evidence that customers are actively seeking solutions, not just politely interested in yours. What worked pre-2022 might not work today.
Competitive Landscape: SaaS markets are particularly crowded right now. We need to see that you understand not just who your competitors are, but their pricing, strengths, weaknesses, and why you'll win. The question isn't whether you have competition—it's whether you understand how to beat them.
Market Momentum and Timing: Every year brings new hype cycles. Are you riding a wave at the right time, or are you entering a market that's already peaked? Understanding whether you're early, on-trend, or late to the party significantly impacts your chances of success.
Revenue Projections: We're looking for startups capable of reaching $10-100 million in revenue within five years. While $100 million is the ideal target, demonstrating a clear path to $10 million shows you understand scalability and serious market opportunity.
3. Product: Beyond Ideas to Execution
The days of raising money on pure potential are over. Now you need proof.
Traction and Validation: You need a working product with real users and, most importantly, paying customers. Revenue validates everything else you're claiming about market demand and product-market fit. The harsh reality: having a great team matters, but if your product doesn't deliver measurable value to paying customers, the investment becomes much riskier.
Defensibility: With abundant capital waiting on the sidelines and crowded markets, we have to ask: how defendable is your business? What prevents well-funded competitors from copying your approach once you prove the market? We look for network effects, proprietary technology or data, high switching costs, strong brand recognition, or regulatory barriers.
User Engagement: Show us real usage metrics, not vanity numbers. How engaged are your users? What's your retention? How do users actually interact with your product? Can your team build and iterate effectively based on user feedback?
4. Distribution: Your Path to Customers
Even the best product fails without effective distribution. This is where many technically brilliant founders struggle.
Customer Acquisition Mastery: You must understand your acquisition funnel deeply. What's your customer acquisition cost (CAC)? How does it compare to customer lifetime value (LTV)? Which channels are most effective and why? These aren't theoretical questions—you need real data.
Sales Process for B2B: If you're building B2B solutions, we need to see a clear, repeatable sales process. Where do leads come from? What are your conversion rates at each stage? How do you handle objections and close deals? What's your average deal size and sales cycle length?
Growth Loops: Can your product drive its own growth? Self-service products with built-in viral mechanisms are particularly attractive because they scale without proportional increases in acquisition costs. For B2B, this might mean user invitations, natural expansion within organizations, or word-of-mouth referrals.
Channel Differentiation: Everyone uses paid advertising and sales outreach. What's your unfair advantage? How do you plan to win the channel wars against better-funded competitors? Maybe it's a strategic partnership, content marketing expertise, or a novel acquisition channel your competitors haven't discovered.
The New Reality for Founders
Here's what's changed since 2021: businesses matter again. The metrics we used to consider "nice to have" are now essential. Revenue, user engagement, defensible competitive advantages—these aren't afterthoughts anymore.
Start with honest self-assessment. Rate yourself on each pillar. Where are you strongest? Where do you need improvement? Investors will quickly identify weaknesses, so address them proactively.
Prepare specific evidence. Vague statements like "we have great traction" won't cut it. Come with specific metrics, customer testimonials, and concrete examples that demonstrate each evaluation criterion.
Embrace the feedback process. View investor meetings as opportunities to stress-test your assumptions and strategy. The best founders use investor feedback to strengthen their businesses, regardless of funding outcomes.
But remember, while we have systematic evaluation criteria, startup success still involves significant randomness. The quality of execution, team chemistry, market timing, and even luck all play roles that no framework can fully capture.
Final Thoughts
The funding environment is more challenging now, but it's also more rational. Investors are backing real businesses solving real problems with clear paths to profitability. If you can demonstrate strength across our four evaluation pillars—team, market, product, and distribution—you'll find the capital you need.
As I often tell founders: sometimes you don't need venture capital at all. Maybe you're building a great business that doesn't require the explosive growth VCs demand. Know your goals, understand your options, and choose the path that aligns with your vision.
Whether you raise venture capital or bootstrap your way to success, these fundamentals will serve you well. After all, the same qualities that attract investors—strategic thinking, market understanding, execution capability, and strong distribution—are what ultimately build successful, sustainable businesses.