Angel Investing Scorecard

The founding team should be ‘uniquely capable’ of solving the problem they are going after. This could be because the team sees a problem others do not. It could be that the founding team’s skillsets give them an immediate upper-hand. It could also be that founder has experienced this pain first-hand and thus is uniquely passionate (in some cases borderline obsessive about the customers and problem). There is power in simplicity and clarity of vision. When an opportunity has strong founder-problem fit it makes future fundraising much, much easier.

I look for a team who can iterate rapidly and ship product. Often this results in a “spikey” founder, i.e., someone who really excels in a singular area or skill. Despite my own bias to technical founders, shipping product doesn’t necessarily have to mean code; creatively engineered solutions can sometimes suffice. Character traits I look for are resourcefulness, spikes, and a strong bias to action. I love Paul Graham’s phrase "relentlessly resourceful”. Exceptional teams combine a high velocity of product iteration with equally strong vision (i.e., high EQ + ability to sell a narrative).

Many of the most successful startups start with a secret: the team has a non-obvious insight serving as the foundation the company is built upon. Non-obvious insights are important because if the problem or solution is obvious, it’s a red flag. Obvious problems could mean low barriers to entry, crazy competition, or deceptively difficult to monetize spaces.

Acuteness refers to how painful the problem is to customers. Solutions that address painful problems sell themselves. In B2B SaaS, an acute problem is one where the customer is willing to pay in advance — assuming the founder delivers on the promised solution. Willingness to pay is typically a good gage as to the level of acuteness.

Evaluating product at pre-seed can be can be tricky because it’s easy to give it too much, or too little weight to the immediately visible. I have seen teams ship a ton of code quickly, yet fail to validate the problem and thus waster a lot of time. Personally, I like to see a working prototype at pre-seed, though for a great team, with significant rigor of thought to the customer, I may be okay with Figma mocks. If there is a product, I’m interested in the time-to-value I experience as a customer.

When I think about traction, I think about customers. What have the founders done to prove customers really want this product? At the earliest stages, the most valuable signals of traction may not yet exist (i.e., revenue). Absent of specific traction, I look for other “proxies” such as LOIs, testimonials or a handful of super passionate early design-partners.

There are three reasons to be aiming for huge returns as an angels. First, the magnitude of your returns matters within the context of portfolio construction. Having one major home run can make up for a lot of other companies going to zero. Second, institutional follow-on investors need to invest in companies that can return the fund+. Third, angels typically own a small piece of the pie, so you want the pie as big as possible to make the return material to you.

Great markets typically have a strong “why now?” The why now might be a specific trend, or technology inflection that serves as a true catalyst. When people talk about venture-scale markets, they tend to think of billion dollar TAMs. However, many of the best markets are non-obvious: they look niche, but are expanding rapidly, and ultimately become huge. When a great market meets a great solution, you get strong market pull. As an example, the iPhone + GPS enabled products like Uber/Lyft to create entirely new markets with massive TAMs. Note: Marc Andreessen has a seminal piece on the importance of markets here.

Entry price matters. The difference between investing in a company at a $5m valuation vs. $25 is a 5x order of magnitude. When looking at deals you want to get a sense for how much you are paying based on the progress, or, the strength of the “reasons to believe”. For most pre-seed deals anything above $12m is getting into rarified air (a.k.a., expensive) and therefore the investor should feel the premium is justified.

As an angel, you should never be the only investor in a round. There are many reasons to seek co-investors, but an obvious one is the more investors, the more runway. Co-investors also provide you with more confidence in the form of additional data points and signal. Keep in mind, not all co-investors are equal. Ideally a round should have legible investors participating. Legibility helps give credence (co-sign) to the founders and their vision. A great investor syndicate paired with a great team is fundraising bliss. Legible investors can act like a gravitational force helping create momentum and draw others (investors, customers, employees) into the founder’s orbit.