The Red Flags I Check For Before Investing In A Startup Entrepreneur

Successful entrepreneurs sometimes proclaim that theirs is the singular path to success; this is a fallacy. There are many different ways to achieve success — and there are even more ways to fail.

Having spent 10 years in the VC/startup world, I’ve noticed a few patterns among entrepreneurs whose startups ultimately fail. Don’t get me wrong, I know that running a startup isn’t easy. When I was a seed stage founder/CEO from 2009–2011, I embodied some of these anti-patterns, and yes my startup eventually failed. So I speak from experience when I share these red flags that usually mean an entrepreneur is headed down the wrong path.

Now at Ubiquity Ventures, I try to avoid investing in these negative signals as they will probably end up costing me down the line. Here are some of the startup entrepreneur red flags I always look out for:

1) Pivoting too often

Pivoting as an entrepreneur means using the information at hand to thoughtfully transition from one product incarnation or target customer or business model to another. This is an important tool for maintaining startup agility, but doing it often is never a good sign. My general rule is that pivoting more frequently than 6 months apart is a negative signal that an entrepreneur may be chasing the next shiny object.

Consider that with each pivot, an entrepreneur has to conceive an idea, design and build it, then launch it and gather metrics. Changing direction too often leads to a frenetic team and half-baked ideas where the product-market fit doesn’t have time to be properly measured.

2) Getting caught up in the startup scene

All too often, I meet entrepreneurs who lose sight of what should be the main focus of their (and every) startup: building products that make customers happy and thus generate revenue. Instead, they get caught up in networking cocktails, events, and “Best of” lists and awards.

It makes sense — the startup scene is a volatile world with sparse signals for entrepreneurs that they’re on the right path, and these superficial markers can quickly become alluring. But while they’re great for the ego, they do little for business or revenue. For many startup entrepreneurs, it may make sense to turn down an invite or an award to instead focus on shipping product and getting customers what they want.

3) Setting unrealistic timelines

Some entrepreneurs assume that raising 12 months’ worth of money means they can build 12 months’ worth of product. Watch out for people with this mindset, because they can drive you off a cliff.

While certain things can happen at “startup speed,” the reality is that some things must happen at “human speed.” Processes like recruiting and fundraising — ones that involve coordinating with individuals outside an entrepreneur’s own startup — can’t typically be done within a matter of days. The smart entrepreneur adds buffers to their project timelines to account for any and all potential issues.

There are many other anti-patterns that I check for in the entrepreneurs I invest in, including:

  • Setting the bar too high for recruiting
  • Not managing product feature creep
  • Not knowing when to take or ignore advice

What are some of the red flags you’ve noticed in entrepreneurs whose startups have failed?

Are you yourself a seed-stage startup entrepreneur in the smart hardware or machine learning sectors? Let’s talk! Leave a comment or get in touch with Ubiquity Ventures.

Ubiquity Ventures — led by Sunil Nagaraj — is a seed-stage venture capital firm focusing on early-stage investments in software beyond the screen, primarily smart hardware and machine intelligence applications.

Ubiquity Ventures is a seed-stage venture capital firm focused on “software beyond the screen” — turning real world physical problems into software problems.

Ubiquity Ventures is a seed-stage venture capital firm focused on “software beyond the screen” — turning real world physical problems into software problems.