The following are same ways you can test for the credibility of potential founders:
- Real Positions: If a founder puts positions on their deck like COO, CEO, CTO make sure that the founder explains exactly what each person will be directly responsible for. I’ve seen multiple situations where a founder lists people on their deck who do virtually nothing. It comes off as dishonest, especially when you cross-reference their position with their LinkedIn position.
- Skin in the Game: What is the exact dollar amount the founders invested? If they have liquid assets why aren’t they putting a significant percentage of their funds in a company?
- Personal Guarantee: While this might be a controversial ask, it helps to understand their level of confidence. In some cases, such as for hard money loans, this should be a requirement.
- Jurisdiction: It adds significant credibility to be based in the US and have significant US assets.
- Ability to Explain a Strategy Specifically and Clearly: If the founder can’t explain their strategy in detail, they may not understand the problem or have the skillset to solve it. In eCommerce there are a few buzzwords that people consistently use that tip me off that they don’t understand how to grow their company.
- Peer-Review from Several Sources/Experts: Get help compiling questions/due diligence from others/experts to get a better understanding of the risk/reward of the company.
- Addictions: Does the founder have any alcoholic, gambling, or drug-abuse issues?
- Realism: If a time frame for milestones or the amount of funds asked for are unrealistic, it shows potential issues with the founder’s judgement.
- Funding Vehicle: For example, an ICO from a BVI company may have a worse reputation than a SAFE agreement or a public company, which does quarterly disclosures.
- Professional Communication: If the founder can write professional updates, it helps add credibility.
- Social Media Presence: You may question the founder’s judgement if they post inappropriate content on social media.
- Ability to Cope with Stress: Ask the founder about the most difficult business challenges they encountered and how they solved them.
- Excuses: I’d rather hear about how someone plans to grow and solve an issue than someone who spends too much time explaining their setbacks (this is just a personal preference). “Dont criticize, condemn or complain” – Dale Carnegie.
- Focus on pro-forma vs actual performance numbers: I want to see both. However, if pro-forma is listed I want the strategy to be explained clearly so that the pro-forma is not complete nonsense.
- Time Management: The “I’m too busy” excuse isn’t impressive or make you seem to be in demand. If you’re good at managing time, you can focus on the important things.
