25 Questions Every Investor Must Ask Startups

Like the S&P, Moody’s credit rating systems, or Morningstar research for ranking public companies, we built our own proprietary, private market investing formula and ranking of the next billion dollar startups.  Until now, we have never released our proprietary formula; we’re sharing this for the first time because you deserve to know how venture capitalists think, and moreover, how you too can make money investing in the right startups.  We score every startup we meet on a scale from 0 to 100 using the following investment formula.  

Before you make any investment in startups, ask yourself, the startup founders, and others, the following questions:

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PEOPLE

THE FUNDAMENTAL QUESTIONS: 

1.     Are the founders all-in? 

2.     Does the founding team have a hacker, hustler, and social media guru?

3.     Does the founding team have a potential "icon," i.e. the next Steve Jobs or Bill Gates?

4.     Would you trust the founders with a blank check? (Based on a thorough background & credit check)

5.     What experience have the founder(s) had with money?

6.     Do the founders listen to your ideas? 

7.     How many of the founding people are still on board?

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PRODUCT

THE FUNDAMENTAL QUESTIONS: 

1.     How much do you enjoy using the product?

2.     What is the likelihood the product will be around 20 years from now?

3.     How favorably do customers speak about the product?

4.     How big is the actual market for this product?

5.     Can you convince your biggest skeptic to buy the product?

6.     Do customers keep coming back to buy the product

EXECUTION

THE FUNDAMENTAL QUESTIONS: 

1.     Does the product create a need or "must-have-it" in businesses or consumers?

2.     Does the product spark memorable marketing conversations?

3.     Does the product empower a community of evangelists?

4.     Has the company become the thought leader, or the follower?

TIMING

THE FUNDAMENTAL QUESTIONS: 

1.     Is this a revolutionary, first-in-class product or the most amazing upgrade to an old system?

2.     If it hasn't been done before, why hasn't it? 

3.     Does the startup have an exit strategy: either staying private and being acquired, or having an Initial Public Offering (IPO)?

FINANCIALS

THE FUNDAMENTAL QUESTIONS: 

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1.     How soon will the startup make money?

2.     What's the startup's valuation?

3.     What equity stake will you obtain and is it enough to stay interested?

4.     Will your investment help allow for at least 18 months of sustainability?

5.     If there's an exit, what's your potential upside?

We always ask tough objective and subjective interview questions; and we always calculate a “1 to 100” startup score.   To learn specific scoring ranges for each question, visit AngelKings.com.

There’s also another part of the decision making process above that’s not mentioned: it’s called your gut feeling or better known as “intuition.”  Whether you’re a card player, investor, doctor, lawyer, or any other profession, you often rely on your intuition in cases where things don’t add up quite right or you don’t have enough information to make an informed decision.   In fact, when you’re investing in startups, you won’t have the same publicly released information as you would investing in a company listed on the NASDAQ or NYSE; thus, you have to be more logical and patient in your investment strategy.   You need to use your intuition less often in startup investing before writing a check.  After all, for every startup success story you’ve heard where someone invested in a “billion dollar” idea because of a purported gut feeling, there are thousands more who lost their money because their gut was dead wrong. 

This is why the Angel Kings’ investment formula is important for startup investors and venture capitalists; it makes important decisions more reliant on facts than intuition.  Use as much of the formula as you can, ask the questions in the following chapters, but if there’s a missing piece that doesn’t add up to our 90 score… you’ve got to be willing to say “no.”  In the startup world, it’s about saying “no” more than saying “yes” that will lead you to higher returns on investment.     

As in law, your burden of proof for investing in startups is beyond a reasonable doubt.  And thus, our formula too is geared towards investing in companies that score a 90+ or more before we would ever say yes to invest.

Here’s a fact: the typical venture capital firm (VC firm) assumes it can beat you investing in startups and amass greater returns than you.   VC firms often return up to 25% per year annualized, often beating the average S&P investor by 10% to 20% or more per year. 

Now, here’s a myth: the old boy networks of VC firms and private equity (“PE”) funds are running the show and preventing you from getting in on startups.    With platforms like AngelKings.com and crowdfunding sites growing under the JOBS Act, you now have the ability to make smart, calculated investments in the next billion dollar startups.

The old boy networks are gone.

ENTER ANGEL KINGS.