Finding “Unicorns:” Questions to Ask Before You Invest in a Startup

Many people ask me about startup investing and how to get started.  

This post — while for informational purposes only and not investment advice — is intended to show you how one successful investor approached the early-stage game.

Jason Calacanis (@jason) has made 125 early-stage startup investments and picked 6 “unicorns” (startups to exceed $1B in valuation) — one out of every 21. Based on his AngelList profile, Calacanis’ investments includes: Tumblr, Cozy, Thumbtack, Rapportive, Uber, Chartbeat, Groundcrew, Evernote,, Nimble, Crossfader, Signpost, Calm, many many more. He’s accelerating his deployment of capital and plans to invest in an additional 150 startups over the next 30 months.

The following guest post is an exclusive excerpt from his new book, Angel: How to Invest in Technology Startups—Timeless Advice from an Angel Investor Who Turned $100,000 into $100,000,000. Using stories from his own angel investing career, Jason wrote this book as a playbook for aspiring angel investors.

In particular, this post focuses on questions to ask founders before you invest, but it also serves as a tutorial on how to ask better questions in life and in business.

Enter Jason


The life of an angel is all about managing a deal funnel, which includes three distinct steps: sourcing deals, evaluating deals, and, finally, picking which founders you’re going to fund.

Meeting with founders for an hour is the most frequent technique for angels to decide who to invest in, but certainly not the only one. There are some angels whose primary technique for selecting investments is to follow other smart investors, drafting off of their meetings and deal flow.

Another technique is simply to review the core metrics and decide based on those. This can be done by reviewing a deck or by checking public information sources, like the App Store rankings, and traffic monitoring services, like Alexa and Quantcast.

Some investors have a huge Rolodex and simply invest in the founders they already know, a technique that worked extremely well for investors who knew Elon Musk (Zip2 and PayPal before Tesla and SpaceX), Evan Williams (Blogger before Twitter), and Mark Pincus (Freeloader and Tribe before Zynga).

Of course, the “invest in who you know” approach would mean you missed the biggest startups in history: Mark Zuckerberg, Bill Gates, Evan Spiegel, and Larry Page, who all hit the ball out of the park on their first try—at the ages of nineteen, twenty, twenty-one, and twenty-five, respectively.

Meetings are important and free. You should take a lot of them. Ten one-hour meetings a week is a good target for a professional angel. Half that if you’re doing this part-time.

My best advice to you as you start dating is to be promiscuous with meetings—but a prude when it comes to writing checks. Don’t be a tramp like I was.

I’m going to take you through the four most important questions I ask all founders. The goal of asking these questions is not just for you to understand the business but also so you yourself can answer four critical investor questions:

  1. Why has this founder chosen this business?
  2. How committed is this founder?
  3. What are this founder’s chances of succeeding in this business—and in life?
  4. What does winning look like in terms of revenue and my return?


Your job in these meetings is to play Columbo, the unassuming and always underestimated detective from the classic TV show that started in the ’70s and ran for more than three decades. Your job is not to show off or demonstrate how smart you are by explaining to the founder what they’re doing wrong or by bragging about your heroics as an investor or, even worse, as a founder yourself.

You want to have big ears and a small mouth in these meetings. You want to ask concise questions that take no more than a couple of seconds and then listen deeply to the answers, considering them with every fiber of your consciousness as you write your notes on paper—just like Columbo.

Listening like this will serve two virtuous goals, the first being that the founder will feel heard and understood by you.

If people believe they are being deeply listened to, they will talk more.

This is why, when you talk to your therapist about your mom, they say “hmm…” while tilting their head and looking at you with sympathy. Then they add, “Tell me more about your mother,” or “Unpack that some more,” or simply “Your mother…”

There are six words, four words, and two words in those responses. The last one is the most powerful because it just hangs there, inviting you to build on the topic.

You want to be Dr. Melfi, Tony Soprano’s therapist, sitting patiently while the passion and pain pour out from the boss you’re meeting with. If you’re a great listener, you will be a great investor, as well as a great friend, a great parent, and a great human being.

Second, if you are hyper-present in the meeting, thinking deeply about the founder and why they are taking on the irrational pursuit of starting a company, which comes with a greater than 80 percent chance of failure and a 100 percent chance of suffering, then you will be able to make a better decision on whom to invest in.

Basically, if you shut your trap and listen like a detective or a therapist, you’ll be able to uncover the answers to those four questions better than other angel investors.

You’ll have more hits and fewer misses.


When you are starting a founder meeting, ask one icebreaker question to get your subject warmed up.

How do you know Jane?

If you were introduced to this founder by a mutual connection, you can quickly establish common ground by asking these five simple words. Listen to the answer you are given and construct a follow-up question based on their answer. So, if the founder said that they worked with Jane, your next move is to say, “You worked with Jane? What was that like?”

I have a game where I try to say things with as few words as possible because it reminds me that this meeting is not about me, it’s about them. It also makes me sound wise, like Obi-Wan or a Toshiro Mifune character.

These are the exact four questions I ask every founder. The answers to these questions will give you most of what you need to make your investment decision. We spend the first half of our hour-long meeting exclusively on them. Then we go deeper.

1. What are you working on?

The reason I phrase this question as “What are you working on?,” versus something more company-specific, like “What does Google do?” or “Why should I invest in Google?” or the supremely horrible “Why do you think Google is going to succeed after eleven search engines have already failed?,” is that it celebrates the founder (the “you”) and what founders do (the “work”). It shows that you have deep empathy and you recognize that this isn’t about what the thing does (Google helps you find stuff), but rather it’s about people (Larry and Sergey write software that helps people find information faster).

2. Why are you doing this?

Again, five simple words that are focused on the founder. When I ask these first two questions, I almost universally see founders melt into their chairs. They relax, let their guard down, and feel like I care about them, which I do. Just like Columbo cares deeply about the suspects he’s interviewing when he asks, “So, what do you do here?” when he walks into their office, as opposed to leading with “Where were you on the night of the murder?”

Just like Columbo, I’m looking for killers and I’m trying to eliminate suspects.

There are some really, really bad answers to the question “Why are you doing this?” The worst two answers, which you’ll hear often, are “To make money” and “Because INSERT-SUCCESSFUL-COMPANY-NAME-HERE doesn’t do it.” If folks are building a startup for money, they will eventually quit when they realize there are many better ways to make money faster and with more certainty. If you want to make a lot of money, you’re better off being a world-class programmer on a very esoteric and in-demand vertical and getting Google or Facebook to give you $1 million-plus a year in stock and cash for ten years in a row. You have no downside, you can work a couple of hours a day, and you get unlimited free food.

If you’re building something because another hugely successful company doesn’t already have that feature, well, you’re wildly naive or, more often than not, plain old stupid. For years people pitched me on startups that were supposedly going to be Google search for news, Google search for video, and Google search for books and magazines. We all know how that turned out.

More recently I’ve been pitched hard on “Uber for food,” “Uber for helicopters,” and “Uber for shopping.”

While there have been some successful startups built by running ahead of market leaders, in general, those kinds of startups get crushed or bought for small dollar amounts. Summize was a search engine for Twitter, back when Twitter was so technologically incompetent that they could barely keep the service online. They bought Summize to catch up, as well as TweetDeck, a more advanced client for reading multiple feeds at once, but the return to the investors in Summize and TweetDeck for these acquisitions were minor when compared to the returns of the company that bought them.

The big problem with “founders” who build a feature that a market leader will inevitably get to—and I use quotes here for a reason—is that they lack vision. The act of selecting a feature as their life’s work, as opposed to a full-blown product or a mission, disqualifies them from being a true founder.

Elon Musk didn’t build a battery pack: he built a car and eventually an energy solution that included solar, home batteries, and, perhaps when you read this, a ride-sharing service like Uber.

It’s okay to start small, but it’s not okay to be a small thinker.

The right answers to “Why are you building this?” tend to be personal. Travis Kalanick and Garrett Camp built Uber because they couldn’t get a cab in Paris at a technology conference. Elon Musk built SpaceX because he wanted a backup plan for humanity. Elon’s earlier idea, that no one knows about, was to put a series of greenhouses in space to back up the biosphere— just like the Bruce Dern movie Silent Running—which, as an interesting aside, came out five years before Star Wars and featured drones that were an inspiration for R2-D2.

Zuckerberg was awkward with the ladies, so he built a social network that would show him their relationship statuses.

Think about that for a second: Is there anything more important than procreation? Not according to Darwin or Freud, so Zuck’s lack of game led to the fastest-growing consumer product in the history of humanity, largely based on people needing to find a mate or to connect with previous lovers (as demonstrated by the number of divorces that mention Facebook in their filings).

3. Why now?

This question has been floating around the Valley for a while, and the first time I heard it was from my friend, Sequoia Capital’s Roelof Botha—the venture capitalist who convinced me to become a “Scout” for their firm, which led to my two greatest investments to date: Uber and Thumbtack.

If you unpack this question, you’re really asking, “Why will this idea succeed now?”

For Uber it was simple: mobile phones were becoming ubiquitous and they had GPS. In fact, another company had already tried to help you order a cab via SMS messages a year before Uber came on the scene. Their “why now” was simply “text messaging,” but that, frankly, wasn’t enough. Without advanced mobile CPUs (central processing units) to power big beautiful touch screens with military precision GPS (global positioning system), there would be no Uber.

For YouTube, which had Roelof Botha as its first investor, the “Why now?” was a confluence of factors and breakout successes that tend to be born during these perfect storms. First, bandwidth costs plummeted after the dot-com crash. Second, storage costs were dropping due to this new thing called cloud computing. Third, blogging was taking off. Millions of folks were writing tens of millions of posts every week and YouTube offered a clever way to embed their videos on other people’s sites—reaching a massive audience for free.

There were dozens of video companies before YouTube, but they all charged people for bandwidth and storage, which meant that if you wanted to post a video on the internet, your reward for going viral was a ten-thousand-dollar server bill. Instead, YouTube sends you a thousand-dollar check from the ads they run on your hit video.

Dropbox, which launched onstage at the first year of my LAUNCH Festival and was also funded by Sequoia Capital, had the same “Why now?” as YouTube: plummeting bandwidth and storage costs.

Founders tend to have these “Why now?” insights without recognizing how profound they are. When I started my blogging company, Weblogs, Inc., in 2004, I had a very simple thesis: I believed that great new writers publishing five short, unfiltered posts a day would get more readers than established journalists writing one story, edited by a half dozen people, once a week.

When I had this realization, it was perfectly clear to me, but even the New York Times journalists didn’t see it. I remember running into legendary tech journalist John Markoff at the Consumer Electronics Show in Vegas when our blog Engadget was covering it for the first time. He asked me how many people we had at the show and I said fifteen. His jaw dropped and he asked me how often they were filing, and I said four times.

He replied, “You’re going to do sixty stories at CES?”

I said, “Actually they’re posting four times a day. So sixty stories . . . per day. How often is your team filing?”

He said they had three journalists at the show and they would do two or three pieces each over the next month. So, they were doing six stories and we were doing sixty a day for five days— three hundred total.

In some ways, “Why now?” is the most important question about the business you can ask because there are so many folks constantly trying the same ideas over and over again in our business.

Google was the twelfth search engine. Facebook was the tenth social network. iPad was the twentieth tablet. It’s not who gets there first. It’s who gets there first when the market’s ready.

4. What’s your unfair advantage?

Founders with breakout startups often have an unfair advantage. Google had their Stanford connections, filled with talented algorithm-writing engineering geniuses. Facebook launched while Zuckerberg was still a student at Harvard, and they used their understanding of campus culture and directories to figure out the dynamics of building online social networks that scale. Mark Pincus launched Zynga with a multi-year cross-promotion deal with Facebook, which allowed Zynga to tag along with Facebook as it grew at an astounding rate. Mary Gates was on the board of United Way with the CEO of IBM, which led directly to IBM hiring her son Bill’s new company, Microsoft, to build the operating system for their first personal computer.

Said another way, this question is asking, in just four words, “What makes you uniquely qualified to pursue this business? What secrets do you know that will help you beat both the incumbents and your fast followers?”

Sometimes, founders will not have an answer for this question. And that’s okay. This is one you often end up answering while looking in the rearview mirror.


After asking these four founder questions, which in total are sixteen words, you should have an excellent idea of what this person is building and why.

These four founder questions give you a great starting point for answering the four investor questions every angel needs to ask themselves before investing. Remember, we want to figure out:

  1. Why has this founder chosen this business?
  2. How committed is this founder?
  3. What are this founder’s chances of succeeding in this business—and in life?
  4. What does winning look like in terms of revenue and my return?

After thirty minutes and four questions, you’re going to have a strong sense of why the founder picked this business, why it might work right now, and, of course, what they are building.

What you probably won’t know are the tactical details of how they plan on executing on their vision, including their go-to-market strategy, what kind of team they have, the competitive landscape, and the nuances of their business model.

You are going to find out the answers to those questions in the second half of your meeting. But this is the foundation.


To learn more about Jason’s approach to investing, and the stories behind his greatest wins, check out Angel: How to Invest in Technology Startups—Timeless Advice from an Angel Investor Who Turned $100,000 into $100,000,000.


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