What I look for as an angel investor?
Over the last year I’ve spent a lot of time thinking about start ups. One day, my co founder asked me what would I look for if I was an angel investor. Sadly, I do not have the money to angel invest myself but it was an interesting thought experiment. I came the conclusion that if I was angel investor I would ask 4 questions.
How are you planning to make money?
The first question I would ask is: how are you planning to make money? For most start ups, the answer should be charge the customer. If your customer isn’t willing to pay for your product then:
* the problem it solves isn’t painful enough for your current customers
* or your product doesn’t solve the problem well enough
Even if you’re planning to have a free tier it is better to find the people who are willing to pay for it first. If they’re willing to pay for it then the problem is probably much worse for them. This means they will give you better feedback.
Charging customers also gives you a metric you can easily keep track of and is harder to delude yourself about.
While there are exceptions to this I think this is true for most start ups, especially SaaS ones.
Who is technical?
Secondly, I’d ask who is technical on the team? While it’s possible for non technical founders to succeed, it helps if there is at least one person who can build the product from the start. This is because hiring is hard and engineers are expensive so being technical makes your life cheaper and easier. Also, the early days you should be building your product and talking to your users. If you can’t build your product it’s hard to do this.
B2B or B2C?
My next question would be are you selling to businesses (B2B) or individuals (B2C)? There are plenty of successful companies in both camps but I would be more comfortable putting my money in B2B companies. This is because I have more experience working in them. Plus, there are couple of things that I think are easier in the B2B world.
Firstly, customers expect to pay for products and you are able to get away with charging them more. As an individual, you have to provide a lot of value for me to give you £10 a month. Where as for products aimed at businesses, you don’t have to provide as much value per pound. Secondly, business tends to have specific problems and therefore will give you much better feedback on why your product doesn’t work for them.
What are planning to spend it on?
Finally, I would ask what are you planning to spend the money on? Hiring fast is a pretty good way to die fast for a lot of companies. That said you will probably need hire some people. Therefore understanding how many people a company is going to hire and why, would give me a good insight to how the founders are thinking.
Overall, this is not say that companies who have different answers to these questions can’t succeed. In fact no one really predict which companies are going to be successful. But the answers to these questions would give me the confidence to put my money where my mouth is.