What to Evaluate Before Investing in a Startup

“Good founders make things happen the way they want. Which is not to say they force things to happen in a predefined way. Good founders have a healthy respect for reality. But they are relentlessly resourceful. You want to fund people who are relentlessly resourceful.” Paul Graham

For those that want to jump into the funding world, we’ve prepared for you this checklist based on the advice of some of the top Angel Investors in the world. From what to evaluate in a team to what to look for in a product, check out these key points:

What to Evaluate Before Investing in a Startup

Key points to check out before investing in a startup

  • Entrepreneur Team: As Ron Conway said “Well, we invest in people. I’m not looking at their idea. I’m looking at: Are they a leader? Are they focused on their product? Can they attract the team? What are the cofounders like? I can tell within three minutes.” So what should you look for in a team? For Naval Ravikant there must be 2 to 3 founders, and he highlights that intelligence, energy, and integrity are a must for any team.

“You want someone in the company who can build and someone who can sell and if there’s going to be an imbalance; it should, probably, be in favour of the builder.” Naval Ravikant

  • Product: Of course the product is one of the main things to evaluate while deciding to fund a startup. Rutger Kemper argues that an Angel Investor should look for a product that is attractive to the consumer and easy to learn how to use. Also, checking the legals to see in which ways the product can be protected is a good idea.

“Don’t go right into angel funding. Use your credit cards, do anything you can so that by the time you go to angels, you have built a working prototype and have some users. You’ll likely be valued higher and will suffer less dilution.” Ron Conway

  • Market: The last category on this checklist is the market, Reid Hoffman explained that “the formula is to build an audience with a great product – then secure enough funding to figure out how to make it pay.” Naval Ravikant recommends not to invest in companies that haven’t made contact with their target customers. That’s why, once again, Rutger Kemper emphasizes the importance that the startup you are planning to fund has a realistic marketing strategy, have engaged their customers and that their product or service has real opportunities in the market.

“If you can recognize good startup founders by empathizing with them—if you both resonate at the same frequency—then you may already be a better startup picker than the median professional VC.” Paul Graham

If you have any questions about investing in a startup via Leapfunder, please don’t hesitate to get in touch, we’ll be more than happy to answer all of them!

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