Angel investors are conditioned to ask questions about product, product-market fit, team, market size and traction. But as my work with angel investors continues, I’ve come to recognize that the real early stage savants are asking a totally different set of questions.
Even if they’re not aware of it.
While some angels won’t invest unless you have a product, a detailed go-to-market strategy and a killer team, most won’t invest if there are problems with the following areas, even if you hit the nail on the head with all of the traditional questions.
So what do early-stage angel investors really want to know? This is my take:
Real question: “If I give you my money will you do everything in your power — be the smartest, hardest working and most honest gal or guy out there — to get me my principal back along with a hefty return?”
The number one thing people care about when dealing with other people is integrity. This is reiterated by every single angel investor I’ve ever spoken to. Are you honest? Will you take my money and go play poker in Vegas (and the Fedex payroll story is something to inspire, not imitate)? Will you spend $2000 of my money on dinner with your family and $10,000 of my money on a personal vacation?
Angels want to sit down with you in the same room and feel deep down in their guts that you’re honest. When they ask you about you they’re really asking “Am I going to have legal trouble because of you, or worse yet, am I going to feel embarrassed for having you on my team because you stole from employees and lied to clients and now I have egg on my face by association?”
Real question: “I want to know your idea because I want to know if you are of sound mind and body and not cray cray… and and I sort of want to know your thought process behind coming up with the idea.”
Most investors who are honest with themselves know they can’t evaluate your idea because they’re not in your space and they’re not as smart as you in the given vertical. AirBnB, Facebook, Tesla, Instagram, Uber — all ideas turned away by thousands of investors who put themselves in the unfortunate position of evaluating the idea. I can’t for the love of me evaluate your idea. I usually have no clue. I can however evaluate your process and your team and see if the idea was the result of a workflow I deem sensible or if you came up with it beause that’s what all the cool kids are doing now. Jason Calacanis wrote about this recently. This is where deep domain experience comes into play and something Brad Feld calls founder-market fit.
Real question: “I can’t evaluate your product, so all I want to know is can your team deliver a product — build something from A to Z and get it to users?”
Most angel investors, especially the self-aware ones, know they’re not in a position to evaluate your product because again, the biggest plays aren’t obvious. What they want to know is can your team get something to market. They want to know what you’ve worked on specifically and how instrumental you were in delivering that product to market. You product doesn’t matter at this stage because products change all of the time. People and teams pivot. But can you get a product that people can use and pay for to market?
Real question: “When I cut you a check will you dedicate all of your time, energy and focus to getting me my money back by making this venture a success?”
How do you spend your time? I don’t really care about all of the details but I want to know the general schedule you follow. If I personally believe this business requires 16 hours a day and you’re working 8 hour days or you take 5 weeks of vacation and countless long weekends and are consulting and involved in 10 different things then you’re probably not focused so you’re not giving it your all. If you have integrity (#1) you’ll give it your all.
Real questions: “Can you count, meaning can you do the simplest financial math and are your assumptions crazy or somewhere in the realm of reality.”
Do you know what CAC is and LTV is and can you picture your unit economics so that you don’t sell a product it takes $100 to make for $20. A lot of startup founders fail at this, a lot more than we’d all like to admit. So can you wrap your head around your own projections? Angels know that none of this will hold up as you sell and scale, but they want to understand how you think.
Real Question: “Can you guys get this done — are you good enough as an organization — but mostly can you get along?”
Are you guys going to have founder drama? More than half of all startups fail because the teams don’t want to continue working together so make me believe that you guys are going to make it through 5 to 7 years of total hell (16 hour days in total stress 6 days a week and then a 3 pm flight on Sunday afternoon to Des Moines). Yes, there are exceptions — teams have known each other for a month before they founded. But you need to understand the risks.
7. Grit, Perseverance, Endurance and Stamina
Real question: “Can you physically, emotionally and mentally take it for years on end? When you fall flat on your face will you get up and go again. Like 57 times.”
How do I know you won’t self-implode when the going gets tough? What makes you think you can work 80 hour weeks at the age of 40? Will you pack things up in year 3 when we’re just getting started so that you can cash out at $10MM and leave me hanging (#thingsThatDavidCohenIsAfraidOf)? Show me that my 7–10 year window is aligned with the next decade of your life.
Real question: “Can you build culture because culture makes it possible to hire the best people and the best people can figure most everything out?”
Do I like you? Because if I like you maybe others will like you and they’ll want to spend time in a room with you (which is important to raise money, hire people, get press, sell stuff, etc.).
If you haven’t built a startup but you’ve build a charity or a department and people will kill themselves to work for you or at least move cross country to work with you then you have a chance of getting the best to work with you.
Real Question: Who am I going to meet? How is this going to help me advance my agenda?
Are you going to YC Demo Day and I’m going to get in? Will I meet Elon? Will I get into some more amazing deals? Will Loic Le Meur write about me on that startup ship? How is this going to help my current investments succeed? Will my Dad be more or less proud of me? Is he finally going to see that I’m a winner?
Whatever it might be, you need to recognize that investors are guided by self-interest and make sure you answer their questions with a strong vision and a good and honest story.
This is what early-stage investors (pre-product, pre-traction, pre-market) are really asking. Figure out how to signal these 9 things and you can raise without a product, without users and without BS.