If you’re someone who follows start-up news, chances are you’ve thought once or twice, How did those guys get funded?

Here at Hustle Fund, we say that we “invest in hilariously early startups”. But that’s not us being jokers about the choices we make.

Rather, we’re looking at a bunch of factors and trying to make the best decision for both investor (us) and founder (maybe you?). But when startups are hilariously early, and we have limited information to review, how are these decisions made?

Well, let’s break it down:

The founder, idea, and fund fit

Some people have argued that the only thing that matters to a startup’s success is the founder. An exceptional founder, the idea goes, can work wonders with simple, mediocre, or even straight-up bad ideas.

Elizabeth Yin, one of our co-founders, takes a different approach. Sure, a great founder can probably bring a bad idea up to a mediocre success. But Elizabeth believes great founders should be spending their time making a great idea into a spectacular success.

So for Elizabeth, what matters is the idea. It needs to be a great idea matched to the correct founder.  

It also needs to be a good fit for our fund.

“Good fit for our fund?” Meaning what, exactly?

Hustle Fund is a microfund, meaning that we offer $50k checks for the opportunity to work with a founder. That’s simply not as big as other funds. While it’s likely that you’ll raise money from other investors as well, we want to know that our small check will be meaningful to your business in the earliest days.

So if you’re a startup with high overhead costs, and $50k will barely get your company off the ground, we’re not the right fit for you. Even a great idea with a great founder might be a pass from us if the idea hinges on a lot of capital to get off the ground.  

So how do we evaluate the idea, founder, and fit? ⚖️

This is where things get interesting.

Good ideas have well-thought-out plans for acquiring—and keeping—customers. Maybe you’re familiar with the terms CAC (cost to acquire customers) and LTV (lifetime value). You want to keep CAC low and LTV high, especially as you scale.

At the most basic level, this means that we want to see that you can

1. Acquire a customer for less money than you make from that customer (low CAC)
2. Keep that customer around (high LTV)

On the CAC side, we want to understand how your company is going to get customers. How are you thinking about marketing right now? What channels will you use to rise above the noise of your competitors? How will these change as you get more customers?

You don’t need to know which channels will perform the best. But you should be able to demonstrate that you’ve thought strategically about all this.

Then we want to know how you’re thinking about the LTV of the customers you do acquire. This is where the fundamentals of the idea come in. Is your product so valuable that people will be willing to pay for it? How often? How much? And within a timeline that our microfund can support?

See, this is how that “fit” piece of the puzzle gets answered.

So, do you qualify?

Maybe! With Elizabeth’s background in both marketing and product, she’s spent a lot of time looking at CAC and LTV over time. That gives her the skills she needs to game out how things might look at scale, even for very early stage startups.

She’s also noticed a few categories where the companies she’s evaluating have the CAC and LTV characteristics she’s looking for:

1. Companies with a truly unique offering. In other words, there may not already be a market for this product, so the company is effectively creating the market. After all, competitive markets have high customer acquisition costs, because by definition all the products in that space are fighting for the same mindshare.
2. Companies that serve emerging markets. For that reason, she often prefers international markets that don't have a lot of existing software solutions. There's more greenfield to get customers.
3. Companies who use non-English language marketing channels. Here it is less expensive to market to and acquire users. In other words, CAC is lower.
4. Products that are conducive to celebrity evangelists. Celebrity evangelists can often (but not always!) break through the noise of marketing that hums all around us.
5. Products where the UX, design, or engineering are 10x better than existing competitors. This is especially true if the market you’re selling to is more technical. Techies pay for great tech!

Even if you decide that you aren’t pitching to us, we hope this helps you figure out how to position yourself as you hustle your way to the funding you need.

All the best!

Carolyn

(pinch-hitting for Kera while she’s on mat leave)

This article was written by Carolyn Abram, a freelance writer with a passion for technology. She also writes fiction and teaches writing classes in her home of Seattle. You can learn more about her at her website or on LinkedIn.