Sam Huleatt
I’ve frequently been asked by other angel investors whether or not I follow a specific framework, or scorecard, when evaluating opportunities.
After six years of angel investing (and 15+ years in the world of startups) much of my process has been internalized, but it does exist. I recently took some time to try and codify how I evaluate pre-seed/seed opportunities and created the scorecard below. I view my scorecard as a work-in-progress. Like the founders I back, I aim for strong convictions, loosely held. I have attributes and patterns I look for in deals, but I try to be flexible, knowing that sometimes patterns must be broken, or altered, based on new information and learnings.
My process for building conviction always starts with the founders. Early stage investing is about the qualitative over the quantitative. There is absolutely a founder mentality I gravitate toward: a combination of grit, confidence and instinct. In addition to personality I also look at background (i.e., technical skills, someone who can sell, etc) and the problem a founder has chosen. Specifically, I find the problem space being pursued speaks volumes about the individual. Ideally a chosen problem stems from some earned secret, meaning the founder, or team, has accrued non-obvious insights from first-hand experience with the problem. The problem itself should also be meaty: meaty problems are acute and have some barrier to entry. Finally the opportunity must be venture-sized (i.e., capable of producing a massive exit) and something I’m personally excited about.
Below I lay out the key criteria I use to evaluate investment opportunities. If you have feedback, please be in touch, I’m always looking to learn and improve.
Scorecard
Company One Liner: There is power in simplicity, so I like to distill each company to a one-liner
Reason for Allocation? I also like to gut-check myself on why I am receiving the allocation.
Scorecard: See definitions below
Exceptionalism: In each investment I look for one area that truly stands out as elite: in some cases it might have to do with design, others distribution, or an unfair founder advantage.
Investor-Fit: My ideal investment is one where I have investor-fit: value I can add from my network, experience, or otherwise?
Scorecard Breakdown
TEAM
At the earliest stages, it’s hard not to argue for the team being the most important aspect of a deal. While there is an argument that the market matters the most, I believe a great team will navigate to a great market. When thinking about team, two areas specifically jump out to me:
PROBLEM
All great startups solve a meaty problem. The problem is the core of the business case and the greater the problem, the greater the customer urgency (willingness to pay) for a solution.
EXECUTION
Execution is a broad term: it’s the output of the team’s ability to get shit done. It’s the “show me don’t tell me” piece of deal evaluation. To me execution relates as much (or more) to customer development and rate of learning as it does to coding. I look for signals of a team’s ability to turn customer feedback into actionable intelligence.
MARKET
The quality of market can be subjective, but it’s is one of the most important considerations. Even great teams will not survive building in a bad market. On the other hand a great market will give even a mediocre team superpowers. Great markets tend to “pull” products out of founders.
DEAL DYNAMICS
Deal dynamics is an encompassing terms meant to take into consideration the price, terms, co-investors and general vibe of a deal. Most deals at the pre-seed / seed stage use standard terms dictated by the founders like SAFEs, or convertible notes. There are pluses and minuses to each structure, but either format can work. I prefer deals with pro rata given to the investors (even with smaller checks), but I would not pass on a great deal due to lack of pro rata.