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What Factors Drive Angel Investment Decisions?
Findings from my recent interviews with 9 local angel investors
“What are the top factors that drive a go/no go angel investment decision for you?”
That’s the question I asked 9 angel investors during 1-1 interviews over the last 60 days.
Here’s what I learned.
The Observer Express
Don’t have time to read the entire post right now? No worries, here are the main points:
The top 4 factors were founder/team quality, market potential/size, product uniqueness/differentiation, and traction/revenue.
The team, along with the market and what makes a startup “different” are very important to angels.
Angels tend to prioritize investment in industries/verticals that they understand or like unless someone they trust is investing.
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Core Stats
Here are the top 4 factors based on the 9 interviews I performed:
Founder/team quality - mentioned by 7/9 angels (78%)
Market potential/size - mentioned by 6/9 angels (67%)
Product uniqueness/differentiation AND Traction/Revenue (tie) - both mentioned by 5/9 investors (56%)
Other Interesting Stats
5/9 angels (56%) specifically mentioned an emphasis on meeting and getting to know the founder personally.
4/9 angels (44%) said they prefer to focus on and invest in industries/sectors they understand.
4/9 angels (44%) said as part of their assessment of team quality, they look at how well the founder appears to understand the market/customer.
Some Takeaways
This sample size isn’t large enough to generalize to the whole market, nor was my methodology particularly robust. However, I do think there are a few nuggets/implications we can draw from this experience & data. Here are some things that stuck out to me:
Team. Super important to angels. Hands down, the most talked about factor was the team. Everyone seems to have their own “method” for assessing the team’s strength, but most do seem to prioritize taking time to get to know the founder. This implies that, while a “pitch” is important for catching attention, the personal interactions that follow are a key diligence factor for many angels.
Market & Competition. Angels really do ask “Is this / could this be a big (enough) market?” and “What does the competition look like?” This one surprised me a bit. It’s super hard to assess market size & identify good comps (believe me, I’ve written enough market sizing / competitive analysis reports to say that with confidence), so my sense has been that many angels tend to glaze over these considerations. However, my conversations suggested that they regularly the questions. That makes high-quality market research & competitive analysis extremely helpful.
“Stuff I like.” Angels tend to prioritize investment in industries/verticals that they understand or like unless someone they trust is investing. Several angels mentioned they tend to focus their investments on things they like or understand. This didn’t come out specifically in the data I collected, but there’s one supplemental observation I’ve made over time (and that was mentioned in a couple of my interviews): angels will occasionally invest in something they don’t understand well if someone they trust that DOES understand chooses to invest. I think this speaks to the power of syndicates with an experienced lead and the “expertise sharing” inherent to angel networks.
Final Thoughts
It’s fascinating to learn how other people think. Each individual I spoke with comes from a different background with a unique set of skills and interests, which directly influence their approach to angel investing. However, while my dataset is fairly limited, it’s likely that the “macro” factors are similar to what I observed during this experiment.
What Do You Think?
What are the top factors that drive a go/no go angel investment decision for YOU?
*I include this section in every post because I’m genuinely curious to hear what you think. I answer every response, so please, don’t be shy!
Weekly Observations: 3 Lessons Learned
Quarterlies are SO ENERGIZING.⚡I get fired up after every quarterly meeting. This week, Keaton and I wrapped up our regularly scheduled 8-hour sit-down (in-person, too!). “An 8-hour meeting?!” You may be thinking to yourself. Yes, and that’s never long enough - we could have easily met for another 8. I don’t know how big businesses get anything done. But man I left that meeting fired up and ready to get to work. If you’re running a business and looking for a solid management structure, check out the EOS Model.
A newsletter has to solve a problem for the reader.🧩This week I popped into a few sessions of Commacon, where newsletter gurus like Alex Lieberman, Tyler Denk, Polina Marinova Pompliano, Justin Welsh, and more shared their experience and expertise. One of my biggest takeaways is that for a newsletter to grow, it has to solve a problem for the reader. Historically, the Diligent Observer has not had a clear “problem” in mind. Well, now it does: Helping angels make better bets.
You never know what experience will end up being relevant.🔄This week I sat down and built a rudimentary order-processing/management system for our team. Until recently, we’ve been able to get by with fairly informal systems, but as we grow this structure will help us not drop the ball (we hope). I started my career in technical sales, and I was shocked by how quickly I was able to build a functional tool because of that experience. Ya never know what will end up being useful somewhere down the road!
Weekly Links: 3 Things I Found Interesting
Thanks for reading, have a great week.
-Andrew
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About Me
I cultivate flourishing.
I'm also the CEO of PitchFact, where our mission is to cultivate flourishing specifically through efficient and collaborative early-stage diligence. I'm a proud husband, grateful father, and honest friend. My love languages include brisket, bourbon, and espresso.