I spent some time in the VC & startup space, evaluating a lot of startups. Evaluating startups is very similar to evaluating web3 projects.
When you invest in a very early stage project, there is asymmetrical information. You are making a bet based on limited information.
Startups are hard. More than 90% of startups fail.
Even those with strong driven teams & great products fail. It’s easy to underestimate how difficult it is, but building something from the ground up is incredibly difficult.
So then, with our limited information, how do we increase the likelihood of our bets? Learn to evaluate the team properly. Ideas are worth nothing. The founders & team need to execute. Here’s how you gauge this.
Look up the founders. Look at their credentials. Look at their past record & what they’ve accomplished. Let’s look at Stephen Tse, the Founder of Harmony One.
He has a PhD in Cryptography at UPenn, worked at Google & Apple and sold a company to Apple before. This is a very solid resume.
While this is no guarantee that he will be successful in crypto, his previous track record makes it more likely that he will succeed.
Running a business is very hard. Stephen previously scaled and sold a company. Which means that in addition to his impressive credentials, he understands running & scaling a business.
This becomes harder when undoxxed. But, there are ways to do it. Do they have a previous track record? This is the most obvious one. If the undoxxed founder has a previous record of successfully building things, that’s a good sign.
Who is backing them? Investors & VCs have way more information than us. If they’ve some big names like Sequoia or A16z backing them, that’s a good sign. These guys do their research & their backing is a stamp of approval.
Communication & Clarity. Good Communication & Clarity are two of the most important things founders can have. Do the founders possess a clear vision & direction for the project? Are they able to clearly communicate this vision?
In crypto, the community is very important. This is especially true for NFT projects. Does the team regularly provide updates? Does the team take in community feedback? Listening to them have open houses is great. How do they talk about the project in real time?
Results & traction. At the end of the day, results mean everything. I want to see what the team has achieved. Even before the launch of the project, there’s a lot to understand the team’s result-achieving capability.
Are they able to get big people as advisors? Are they able to partner with key strategic partners? Are they constantly rolling out updates and successfully hitting milestones on their roadmap?
Putting it all together, let me talk about an NFT project that I’m in — Curious Addys
The founders have solid resumes. ex Harvard, successful entrepreneurial experience
After reading this, I was quite interested in what these guys were building. These guys were constantly building & getting results. They got people like Zeneca, Artchick & the founders of Alchemy.
They had top notch communication. They regularly put out updates and were able to hit the milestones they wanted to. They had a big goal — creating an educational ramp to web3.
In fact, they were so community & results driven that they put in a clause in the contract that allowed anyone to “return” the NFT up till 100 days after the mint and get their money back.
In a world of scams and mint then build, this was very refreshing & greatly increased my confidence in them. And it turns out, this held true. Even after the mint, they continued to constantly build, communicate well & achieve results.
You can use this sort of analysis not just for NFT projects but for just about any web3 project. Here are some things to look out for:
Young founders:
The age of people in crypto is way younger. This holds true for founders & builders too. In crypto, you have high school students successfully building billion dollar projects.
When you analyze projects, do not dismiss projects merely because of the founder’s age, although you do have to be more careful. When it comes to evaluating projects with young people, the single most important thing is results.
Are they able to successfully get results and hit milestones? Are they able to secure relevant partnerships? Are they constantly building & putting out updates? Are they building a team of experts? Who is backing them?
When it comes to younger founders, they lack experience & are more likely to get distracted. These are big dangers that could make your money go to 0. You need to evaluate & decide whether what they have been able to achieve outweighs the risks.
Running a business needs different skills.
There is a key difference between credentials & the able to build a project. A lot of people are smart af, have Phds & have had big titles.
But at the end of the day, building a project or a business requires different skills. You need people who are business savvy.
Even if the founders aren’t the best people, they should be surrounding themselves with people who are.
I would much rather invest in a team of competent college students who are business savvy than a PhD who does not know how to build a business.
How do they deal with setbacks
Another thing to look out for is how they deal with setbacks and obstacles. Setbacks happen all the time.
It could be something big it could be something small. How do they deal with these challenges? How quick are they to respond.
When something big goes wrong, I need them to respond immediately and start working on a fix. It takes that sort of response time to be successful.
At the end of it, you have to make a decision based on asymmetric info & make a bet. If a team checks all these boxes, it greatly increases the chance of them succeeding and me betting on them.
Ofc, there are a lot of other things to look out for too — the market, competitors, the idea/problem itself. I’ll dive into these later. But, after all this, the project can just go to shit.
That’s just the nature of this game.
Lastly, follow people who put out good content & share their analyses. You can learn a lot from others’ experience.
