Selecting the highest potential startups

At a startup conference earlier this month in Boston, I was asked about how I quickly screen startups to select those with the most potential to be successful investment.

I developed a simple rubric for evaluating startups using 5T's - in order below, with examples from businesses I have backed : 

Target market : create or lead a niche and then be able to expand (Q Drinks started with tonic water, then extended to other sodas).

Technology/product : unique and defensible (ideally with some intellectual property and patents) that is designed to scale (the value of Spotfront’s PromoteIQ platform increases with additional customers and brands) 

Team : great founding team with a mix of innovative thinking, selling skills and execution focus (Device42 had a mix of tech, sales and business skills)

Traction : proof that customers want and will pay for the product (Cherre had revenue from customers willing to pay for its data platform).

Terms : reasonable valuation that compensates investors for the high risks of startups. I use a guide of a probable 10x upside if the business executes according to their plans and a possible 100x if a “dream outcome” occurs.