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Mercer Global Advisors, Inc. (“Mercer Advisors”) is a SEC registered investment adviser. The firm only transacts business in States where they are properly registered or excluded or exempted from registration requirements. Mercer Advisors is not a law firm and does not provide legal advice to clients. Mercer Global Advisors has a related insurance agency. Mercer Advisors Insurance Services, LLC (MAIS) is a wholly owned subsidiary of Mercer Advisors Inc.

Mercer Advisors is not affiliated with Hustle Fund. Mercer Advisors does not promote or offer investment in the Hustle Funds or any of Hustle Fund’s underlying portfolio companies or other start up opportunities introduced through Hustle Fund.

📰 Today's topic: due diligence for pre-seed startups

There are a lot of upsides to investing in pre-seed startups.

The exit potential, the opportunity to be part of the journey from day 1, the high you get when you find a team with a truly unique world view…

The problem is, there’s very little data to go on. Pre-seed companies are often barely out of the idea phase. No customers, no revenue, no traction.

Today’s Small Bets article gives you a framework for evaluating these early-stage startups.

We’ll cover the team, market, problem, solution, business model, unit economics, and—often overlooked — the humans building the dang thing.

Evaluating the Team

The team is the most critical factor at pre-seed. You’re effectively backing the founders’ ability to figure things out.

Here’s what to look for:

Founder-market fit

Do the founders have personal experience with the problem or industry? This reduces ramp-up time, and gives them a unique perspective on their ideal customer persona.

Ability to recruit

Can they attract early employees, advisors, and customers? Great founders are talent magnets.

Resilience and adaptability

Pre-seed companies pivot all the time. Are these founders coachable, or do they cling to their first idea?

Clear division of roles

Especially in multi-founder teams, is it clear who’s doing what? Do they have complementary skills? Do they have a history of working well together?

Evaluating the Market

A great team in a tiny market will hit a ceiling fast. This might be fine for angel investors, but if you’re a VC, you’re probably aiming for a 50x or 100x return.

Here’s what to look for:

Size

How big is the total addressable market (TAM)? Rough numbers are okay, but you want evidence this is — or will become — a huge market.

Growth

Is the market expanding, or is it shrinking or stagnant? You want tailwinds, not headwinds.

Trends and timing

Are there policy shifts or technology changes creating an opening for this company?

Competitive landscape

Are there entrenched players, or is the field wide open?

Some competition is good — it means there’s demand. But too much means the customer acquisition costs will be untenable.

If the team is building in a crowded space, find out what their unique edge is. Why do they believe they’ll be able to acquire and retain customers?

Market evaluation is where a lot of investors overestimate opportunities. Be honest about the market reality.

Evaluating the Problem

Customers with a big, painful problem are usually looking for a solution. And they're willing to pay for it.

Here’s what we’re looking for:

Painkiller, not vitamin

Is this problem in the top 3 problems of the company’s ideal customer? If not, it’s probably a nice-to-have (vitamin) rather than a true problem (painkiller).

Frequency and intensity

How often does the customer experience the problem, and how painful is it when they do?

Customer validation

Have the founders talked to real users? Do they understand the problem deeply, or just at the surface level?

Founders should be obsessed with the problem — not just the solution.

Evaluating the Solution

It’s easy to get seduced by shiny demos or cool tech. Resist. Instead, look at:

Differentiation

How is this product meaningfully better, faster, cheaper, or easier than alternatives?

Feasibility

Can the team actually build this? Will it be easy for customers to adopt the product?

Early signals

Are there prototypes, pilots, or early adopters showing interest?

Roadmap realism

Does the team have a vision for the future of their product? Are they using insights based on customer feedback to build that roadmap?

Will future versions of the product lead to a higher LTV (lifetime value) and/or a larger customer pool?

The Business Model and Unit Economics

Even at pre-seed, it’s worth finding out how the company thinks about making money.

Things to explore:

Revenue model

How will they make money — SaaS, marketplace fees, ads, transactions? Is that model sustainable? How long will it take them to get paid?

Pricing strategy

Do they have a sense of what customers might pay, even if it’s just rough estimates? How did they arrive at this number?

Customer acquisition

How will they get their first 10–100 customers? What channels are they testing? How expensive are those channels?

Basic unit economics

Are they at least directionally aware of what it might cost to acquire a customer (CAC) vs. how much that customer is worth (LTV)?

You don’t need a full financial model, but you do want evidence they’re thinking about this.

The Humans Behind The Company

This part is often missed. If everything goes right, you’ll be working with this team for many years to come. So you wanna make sure they’re good humans.

Look for:

Responsiveness and transparency

Do they communicate openly, share bad news, and ask for help when needed?

Energy and pace

Are they moving fast, learning, and iterating?

Coachability

Do they take feedback, or are they defensive?

Values and integrity

Do they operate with high trust? It’s early, but these signals show up fast.

A founder who’s a nightmare to work with will burn through employees, customers, and investors.

Welp. That was a lot.

Pre-seed investing is a bet on people and potential. But it takes a healthy dose of curiosity, and the ability to see beyond slick pitches.

This framework should help you identify potential breakout teams even if they aren’t swimming in customers and revenue yet.

‘Til next week,

Kera from Hustle Fund

Why we said “yes”

A step-by-step look at our decision process to invest in a small startup called Daily Blends.

The 5-pillar framework in action →