Angel Investing is risky and not for the faint of heart – that we all know. But for those brave hearts who believe in supporting startups, evaluating a startup and figuring how to get the key information you need to make an investment decision is crucial — this is especially the case when investing in science and deep technology startups.
Most of the details you’ll need to find out will come from the management team and simply listening to an inspiring pitch from an entrepreneur isn’t enough. You need to dig deeper to make sure the team has what it takes to make the company a success by asking the right questions–questions that force the team out of their comfort zones and give you the answers you need.
To get your conversation with management going and evaluating a startup, start with these critical questions –
- “Why did you start this company?”
Tip: Look for determination and self-awareness.
Focus and resolve are key characteristics to look for. Discover your management team’s inspiration and learn what drives them. Ask about the company’s origin and take the time to be walked through the early days. Find out how they secured their first investor or employee. You want to be sure they have an idea of how to grow the company without claiming to do everything themselves. Have them explain their skills alongside personal strengths and weaknesses.
- “What is your elevator pitch?”
Tip: Look for persuasiveness.
Ask yourself, can this team sell? See how they’ve expanded—or plan to expand—their organization. Entrepreneurs who know what they’re doing can provide you with the idea, the means, and the goal in less than three minutes. By the end of the three minutes, you should have a basic understanding of the business. The first minute of a pitch is pivotal and they should be direct, decisive, and determined from the outset. Outside of pitches, look for clear communication. There should never be a moment you don’t understand what’s going on. If they’ve lost you in delivering their pitch, then pass! You won’t be the only one.
- “What is your expertise in this field?”
Tip: Look for relevant experience.
While a good idea can come from anyone, when it comes to science and technology startups, having members of the management team that have the relevant educational background and training in the field is crucial. Ask about the educational backgrounds of the key people on the team and pay attention to the institutions they come from — especially for science and deep technology companies university affiliation is a relevant success criteria. Ask about any published works or patents in the field.
- “How do you think the industry will pan out?”
Tip: Look for vision.
Just because an idea works doesn’t mean it’s the right time or place. The management team should have research on hand concerning the current state of their industry and already determined where the competitive landscape is headed. Ask why they think their product or service has a viable spot in the market. Ask question after question about their company industry landscape, from who their target audience is (and why) to who their competitors are (and why).
- “What is the roadmap for achieving your vision?”
Tip: Look for logical thinking.
Entrepreneurs have destinations in mind, but does this team know how to get there? Business is about making a vision a reality. Whether a company’s initial roadmap spans months, or years, you need to see how the people you’re investing in envision the next step or dozen. Ask specific questions about how they see the future shaping up. What are the anticipated milestones? When should you expect those milestones to be hit? What are the potential barriers?
- “Is there anything else I should be aware of?”
Tip: Look for integrity.
Facing serious obstacles is inevitable when starting a new company and a management team that is transparent about sharing their hurdles is priceless. You want to be sure the management team is open about the challenges they are facing and not hiding anything from you with broken storytelling. If your spidey-sense is telling you something is off then look for inconsistencies. Be on the lookout for instances of different dates, revenues, plans, and/or goals. Ask to see the data that proves their product or service will work. Ask about their customer development. Have they been talking to customers? Who is the audience? Have they done a survey? These answers are key to you as an investor and you shouldn’t hesitate to dig.
Angel investing is often so closely tied to belief in a team as much as an idea, so evaluating a startup and getting to know the team is paramount. At the end of the day, be on the lookout for companies whose management team you think will go the distance and then do your homework to know that they will.
Originally posted on LinkedIn.