As a veteran in the technology sector with over three decades of experience and a Venture capital investor Since 2015, I have evaluated countless startups in Europe, the USA and Central Asia.
To date, I have supported 52 companies, mostly focusing on technology companies. In 2023 alone, my investments included 19 projects with a total value of almost $4 million.
Every month I review 20 to 30 investment proposals. But only 5% secure my support. And that’s because many don’t meet my strict criteria for supporting a company and usually turn me off due to one or more red flags.
If you want to make a pitch to a VC or Angel investor, you would do well to avoid similar cautions. To give you some guidance, these are the top warning signs that often stop me from investing.
Red Flag #1: Misunderstandings about product market fit
I was once approached by an Indian company. They proudly announced that they have renowned professors from the USA and Mumbai on their board. Impressive, right?
But when I asked about them Business model validationThey relied on academic recommendations.
Here’s the thing: no matter how prestigious the endorsement, real attraction is created actual users. I need solid metrics, and that means sales, advertising, conversions and unit economics over at least six months.
If people value your product, they will pay for it. If you’re not making sales, it’s time to rethink.
Founders often tell me, “Our retention and LTV metrics are low because we don’t have enough users yet.” With a million users, everything will work itself out.”
This is an illusion.
If your product doesn’t work at small scale, scaling won’t solve the core problems. For a startup, a 40% annual growth rate might sound great. But I’m aiming for at least 20% monthly growth.
Small numbers are fine. It’s the momentum that counts.
Red Flag #2: Fixing irrelevant problems through poor customer development
A startup needs to address a real problem. The lack of competitors can also be a warning sign, indicating that either there is no problem or that the problem can be solved in another way.
It is important to have good and in-depth customer development (CustDev). Simply talking to two or three acquaintances about this problem is not enough.
Effective CustDev requires conducting at least 30 in-depth interviews to uncover real user insights and pain points. Decisions based on real customer feedback have a higher probability of success than those based on assumptions or minimal market interaction.
Once a group of founders approached me with recognition software Employee burnout. Her Target market These were large Southeast Asian companies where grueling 12-hour workdays often lead to burnout and high turnover, severely impacting business performance.
They first validated their product through interviews Human resources manager, which confirmed the value of the software. However, during these discussions another major problem emerged: a glaring lack of leadership programs for mid-level managers.
While top executives had such programs in place, middle-level managers were left without support. The founders took this insight and pivoted, using their software to identify employees with high career growth potential and address this new problem.
This strategic change was the engine of their success.
Warning Sign #3: Founders lack industry knowledge
If founders lack industry knowledge, the chances of success of their project decrease significantly. For example, let’s take a team building a startup in the field of psychology. If one of the founders has spent a decade in the industry and understands its nuances and challenges, my confidence in the project increases.
If such expertise is not available, I inquire about the startup’s advisory board.
To reassure me, the founder must be a real expert with 10–20 years of experience in the field.
Warning Sign #4: Founders are unwilling to admit mistakes
From time to time I meet founders who find it difficult to accept criticism. They find it difficult to admit mistakes and often cling to a single hypothesis, viewing it as the ultimate truth.
However, making an idea work requires testing multiple hypotheses (usually 5–10), adjusting the model, and sometimes creating a pivot. However, some founders get stuck on an idea and persistently push it forward, even if it doesn’t produce results.
Beyond the product itself, there are crucial aspects such as Team dynamics, marketing strategy and identification of key factors. Experienced investors can often point out blind spots, but not every founder is open to listening.
Entrepreneurship is a talent. While I value entrepreneurial experience, it is important for founders to remain flexible. This flexibility ensures that their experience supports, rather than hinders, the startup’s growth.
Warning sign #5: toxic investors in the cap table
Toxic investors can be those who have untested sources of income, are under sanctions or impose unreasonable conditions. Another crucial factor is the desired capital investment.
Here’s a typical scenario: An inexperienced investor or someone without a venture capital background offers a startup $1 million up front for a 30% stake. This can be a tempting offer for founders, but in my experience such deals rarely end well.
At the Pre-seed stageNo investor should receive more than 10% equity. There are many rounds of funding coming up, and if a founder gives up a large stake early on, they risk losing motivation to continue. It is important for founders to maintain control of their company. The founder should always give priority to his share, while investors should take a subordinate position.
From Round AEven if there is some dilution, the founder’s shareholding should not fall below 50%.
Know what your investor wants to see
Now that you understand my warning signs, you can easily imagine what I would like to see to get me interested in investing.
Founders must deeply understand their market, demonstrate competency, quickly test and adapt hypotheses, and remain flexible in the face of changing conditions. Your product should be validated and have the potential for 10x to 100x growth.
Even after rejecting many founders who showed me a red flag, I remain excited to meet teams that meet these criteria and discuss their projects further.
In my more than 30 years in the technology business, I have been fortunate to build dozens of successful projects, and in my decades of experience as a venture investor, I have invested in 52 innovative startups present in the markets of Central Asia, Europe and the USA. In total, I have invested around $25 million in startups and experienced over 10 successful exits.
