Angel Investor Due Diligence Questions

Evaluate whether the founders possess the unique skills, passion, and domain expertise necessary to succeed in this specific industry. Look for deep personal connections to the problem and a track record of overcoming similar challenges.

Verify if the market size is genuine and accessible, distinguishing between SAM and SOM. Challenge overly optimistic top-down market sizing and look for bottom-up evidence of demand validation and willingness to pay.

Assess the defensibility of the business against established incumbents and potential entrants. Look for network effects, proprietary technology, high switching costs, or exclusive partnerships that protect long-term margins.

Scrutinize the cost structure per customer, including CAC and LTV ratios, to ensure long-term viability. Determine if the burn rate supports reaching the next milestone without excessive dilution or immediate fundraising pressure.

Examine the concrete plans for acquiring early customers and scaling distribution. Look for evidence of channel partnerships, sales cycles, and whether the acquisition strategy is capital-efficient and repeatable.

Review the capitalization table and relationship dynamics among co-founders to ensure alignment and stability. Red flags include unequal contributions, unclear roles, or aggressive vesting schedules that might demotivate key members.

Confirm that the product solves a painful, urgent problem rather than offering a nice-to-have solution. Look for beta user testimonials, retention metrics, and clear evidence that users would be devastated if the product disappeared.

Identify potential legal hurdles, industry-specific regulations, or data privacy concerns that could stall growth. Early-stage companies in fintech, healthtech, or AI must demonstrate awareness of these barriers to entry.

Assess the scalability of the technical architecture and the risk of significant refactoring in the future. Determine if the current tech stack can handle projected growth or if it requires costly rebuilding during scaling phases.

Discuss potential acquisition targets or IPO possibilities to understand how investors might realize returns. Evaluate if the business model aligns with typical exit timelines and if comparable companies have successfully exited.

Check if the revenue is dependent on a small number of clients or a single large partnership. High concentration increases risk, so diversification of the customer base is critical for stability and valuation.

Clarify how much capital is being raised and the specific milestones it will achieve. Ensure the funding round provides at least 12-18 months of runway to reduce the risk of failure between financing rounds.

Evaluate the strength and relevance of existing advisors who provide industry credibility and connections. Strong advisors can open doors to enterprise customers, future hires, and strategic partnerships early in the company's lifecycle.

Analyze the rate at which customers stop using the product or service to gauge product-market fit. High churn indicates fundamental issues with value delivery or customer experience that must be addressed before scaling.

Verify that all code, patents, and trademarks are fully owned by the company, not individuals. Ensure proper assignment agreements are in place to prevent future legal disputes over core assets and technology.

Determine if the business model can grow revenue significantly faster than costs without linear increases in headcount. Look for automation, platform-based models, or leveraged distribution channels that enable rapid expansion.

Assess whether the founders are open to feedback, criticism, and guidance from experienced investors. Arrogance or defensiveness during due diligence often signals poor governance and resistance to necessary strategic pivots.

Evaluate if the current macroeconomic environment and technological trends favor or hinder the solution. Entering a market too early can be as dangerous as entering too late, requiring careful assessment of adoption curves.

Discuss liquidation preferences, anti-dilution provisions, and board control rights that protect investment. Ensure standard legal protections are in place to safeguard capital in case of down rounds or unfavorable exits.