Angel investing can be a rewarding way to support innovative startups while potentially reaping substantial financial rewards. However, investing in early-stage companies comes with its own set of risks. To help you make informed investment decisions, it’s essential to perform due diligence and ask the right questions. In this article, the AIS team will provide you with a framework of questions to evaluate startups effectively, covering five key areas: the team, the product, the market, the go-to-market strategy and the business model.
- Evaluating the Team
A startup’s success often hinges on the strength of its founding team. Here are some questions to consider:
1.1. What is the team’s background and experience relevant to the industry?
1.2. Are the founders passionate and committed to the project?
1.3. Do they have a track record of working well together?
1.4. Have they attracted top talent to complement their skills?
1.5. How well does the team understand the challenges and risks associated with their business?
- Assessing the Product
Understanding the product or service a startup offers is crucial. These questions can guide your evaluation:
2.1. What problem does the product or service solve?
2.2. Is there a clear value proposition for customers?
2.3. How does the product compare to existing solutions in the market?
2.4. Is there intellectual property (IP) or technology that provides a competitive advantage?
2.5. Have there been any prototypes or MVPs (Minimum Viable Products) developed and tested?
- Analysing the Market
A thorough analysis of the target market is vital to predict a startup’s potential for growth. Here are some questions to ask:
3.1. What is the total addressable market (TAM) and the serviceable addressable market (SAM)?
3.2. Who are the key competitors, and what differentiates the startup from them?
3.3. Are there any regulatory or market trends that could impact the business?
3.4. How does the startup plan to acquire and retain customers?
3.5. What is the growth potential in terms of customer acquisition and market expansion?
- Assessing the Go-to-Market Strategy
Understanding how a startup plans to bring its product to market is essential. These questions will help you assess their strategy:
4.1. What is the sales and distribution strategy?
4.2. Who is the target customer, and how will they be reached?
4.3. What is the pricing strategy, and is it competitive?
4.4. What marketing and branding efforts are in place?
4.5. How does the startup plan to scale its operations as it grows?
- Examining the Business Model
Lastly, evaluating the sustainability and profitability of the business model is crucial. Ask these questions to gain insights:
5.1. How does the startup plan to monetize its product or service?
5.2. What are the revenue streams, and are they diversified?
5.3. What are the projected financials, including revenue, expenses, and profitability?
5.4. Are there any potential risks or dependencies that could impact the business model?
5.5. What is the plan for seeking additional funding or achieving financial sustainability?
As a beginner angel investor, conducting thorough due diligence is essential to mitigate risks and make informed investment decisions. By asking these questions across the five key areas of evaluation—team, product, market, go-to-market strategy, and business model—you’ll be better equipped to assess startups across various sectors. Remember that each startup is unique, so adapt your questions and evaluation criteria accordingly. With diligence and the right knowledge, you can become a successful angel investor supporting the next generation of innovative entrepreneurs.