Judging a really early stage start-up

From REALLY early stage, I mean a bunch of guys 3 or 4 years out of college, having quit their highly paying techie jobs, wanting to build the next big thing and get rich soon. I can really relate to the picture, as an year back, I really did fit the description. You know these people when you meet them. They have hazy ideas in their heads which they think are profound, and are filled with enthusiasm and determination to fight it out and “make it work”.

While someone who is “seasoned” can bludgeon these guys’ theories to death in 10 minutes flat, we can see that traditionally in the west, its guys with these kind of profiles who have gone on to create the biggest tehnological successes. While some amount of bludgeoning is definitely justified, I have a feeling that the “seasoned” lot misses one point while dealing with these start-up guys: Judging by reason, start-ups hardly have a chance of succeeding. Start-ups have disbalanced teams, no money, no background in business, and still, some of them go on to become phenomenal successes.

Then how does one judge a startup? On what parameters? My take is, a start-up should really be judged on three parameters that I have written about below. I’d love to have a discussion about this here, and see if we can add to this list. Here’s my list of parameters (in no particular order):

1. The Market: Start-ups trying to solve a problem that does not exist are so common. There should be a clearly defined market/need/demand for whatever the start-up is trying to do, whether it is a consumer internet portal, or an enterprise service or electronic gadgets. The “seasoned” lot must first look at the existence of the market, and estimate the size of it.

2. The Techonology: Most techies will try to solve problems with extreme use of extreme technology, because thats what they are good at. Now that, in many cases, causes problems. For instance, it might increase costs so much that it might make the product or service prohibitive for the market. Its very critical to correctly judge the technology the start-up is using.

3. Enthusiasm/Guts/Desperation-To-Succeed/Human-Qualities: This is what separates the men from the boys (Sorry, I didn’t intend to be sexist here :). An assessment of this again comes from the gut, and you know these guys when you see them, and have talked to them for just five minutes. This is the magic sauce that makes a start-up succeed. It is very critical to correctly evaluate this.

Other than these, I know that an infinite number of holes can be punched into any start-up’s theories. Is doing that right? I would love to know what you think.