Angel investing in tech startups can be a massive source of wealth creation. It’s sexy too, who doesn’t want to say they’re an angel investor. And what better way to spend your time than by meeting some of the most inspiring and innovative individuals building the world-changing business of tomorrow.
But it is not all unicorns and rainbows. Angel investing has major risks.
Because most companies go to zero.
Because investing is about more than just looking cool and having fun.
Because there is serious money at stake.
And maybe most importantly of all, you’ve probably never done this before. You’re not an investor by trade – you’re an operator, a doer or maybe even a successful lawyer or dentist etc…
Either way, getting into angel investing is often a trial by fire – lots of investments, lots of money lost… But it doesn’t have to be, not if you follow some basic frameworks, think about investing like a job (instead of a hobby) and avoid getting swept up in the charisma of the founder or enormity of the opportunity.
Here’s a checklist to get you started. And while I can’t guarantee success, if a founder/startup that checks all the boxes, you’ll know you’re probably off to a good start.
And if you’re interested, I run an investor group for angels and other accredited investors interested in getting exclusive access to vetted high-quality deal flow. Apply now!
The Angel Investing 101 Checklist
1. Was your very 1st impression when meeting the founder positive? Do they seem trustworthy?
2. Has the founder built a company before? What was the outcome?
3. Have you talked to each of the founders and do they seem like a good team? Have they worked together before?
4. Have you talked to previous investors or mentors of the founders?
5. Is the founder personally invested in the problem they are solving? Why is this specific founder building this specific business?
6. WILDCARD: Is the founder/CEO someone you’d personally work for and respect?
7. Is the company incorporated (in a country with legitimate rule of law) and able to take outside investment? (I.e. a corporation as opposed to an LLC or partnership)
8. Are there other investors with at least as much experience as you?
9. Can you afford to lose your entire investment?
10. Have you looked at investing in at least 10+ other companies to compare with?
11. Have you seen the cap table? Is there any deadweight (i.e. ex-employees or work-for-equity dev shops)
12. Have you had a lawyer review at the investment contract?
13. Have you tried the product? Were you impressed?
14. Does the company have a defensible unique selling proposition (USP)?
15. Do you know the company’s burn rate and how much they have in the bank?
16. What are the company’s MRR, CAC and LTV and other main KPIs?
17. Can the company 50-100x their current size and valuation?
18. Does the company have an exit plan?
19. Do you know a thing or two about the industry?
20. Who are the big players and competitors in the space? How big/well-funded are they?
21. Have you reviewed the competitor’s products?
22. Do you know the Total and Serviceable Addressable Market size (TAM & SAM)?
23. Have you talked to customers to get their thoughts?
24. Are you able to add value to the company? (More than just money)
25. Have you taken a night or two to think it over? If not, sleep on it – more often than not, you’ll be glad you did!
Again, this checklist won’t guarantee 100x results or 5x portfolios, but should help filter out most of the noise and allow you to get down to the basics of what investors do best – actually evaluating potential startups. And then it is just a question of deal flow and evaluating investment opportunities.
PS. Are you a startup looking to fundraise? I can help : ) Plus, here are a few helpful guides to get you started!
- The Killer Startup Pitch Deck VCs Can’t Ignore!
- The Memorable Elevator Pitch that VCs Can’t Ignore
- Startup Fundraising 101: The Pros & Cons of Each Type of Investor
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