The 5 Fundamentals of Angel Investing

Evaluating a company’s strengths, weaknesses, risks, and upside is one of the most important parts of the investing process. 

The difference between a truly profitable investment and a complete dud is often just a few degrees of difference.

Startup investing is risky so it’s important for you to do your own due diligence on each company you consider for investment.

Here’s the checklist we use when we’re doing our due diligence:

1. The Team

We don’t just bet on the horse; we bet on the jockey. There are few things as key to a startup’s success as the founders and core team. 

But key investors can be just as meaningful. Look for a track record of success (i.e. past exits) and a team with complementary skill sets.

2. The Marketing & Customer Acquisition Strategy

To keep margins healthy and stay profitable, a company must keep customer acquisition costs low. That requires a bonafide strategy. 

We review everything from the creative to the reporting to ensure that the startup’s marketing is airtight.

3. Revenue

We typically only invest in startups with demonstrated revenue and growth. A healthy revenue number shows us that the company’s product or service has traction. 

A healthy growth number (20% month-over-month or better) shows us that the marketing strategy is working and that they can achieve profitability.

4. Product-Market Fit

In addition to running the numbers on a company’s success, we test the product/service and study the customers/market. We are looking to ensure that the startup is addressing a true pain point, not a mild irritation, and any market factors that might work for or against it.  

5. Potential Upside

Lastly, we only invest in companies that have the potential to deliver a 10x return (at a bare minimum, 50x would be better). We review Total Addressable Market (TAM), as well as a company’s plans for exit: IPO, MNA, and future capital raise.

How do you apply the 5 Fundamentals of Early-Stage Investing? Finding companies to invest in–which investors call “Deal Flow”–is another major pursuit of investors.