The first check I wrote happened organically. A super smart, hardworking coworker was leaving to start a company.
Having seen him execute like a boss for 2 years, investing was an easy decision.
A lot of angels get started this way.
But how do you evaluate an early-stage company when you don't have a personal relationship with the founder? When all you have is a deck and a deal memo?
Two words: Market pull.
What is market pull?
Market pull measures how quickly customers are adopting the product.
Market pull is different from total addressable market (TAM), a staple in most pitch decks.
TAM looks at market size but doesn’t answer what’s currently happening in the market, how challenging customer acquisition is, or the upsell potential for those customers.
3 types of market pull
Market pull fills in those knowledge gaps. You’re likely to see it in one of three flavors:
Product-based market pull: virality is built into the product through invites or referrals (and it’s working!). Calendly, Dropbox and Superhuman are classic examples of this sort of growth.
Sector or geography market pull: competition is low and the timing is right. Think Coinbase, founded 3 years after Bitcoin launched.
Marketing market pull: retention is strong enough to offset the cost of customer acquisition (CAC) through ads or content marketing. Hubspot is a good example.
Two questions to assess market pull:
Look for indicators of product- and marketing-based market pull in the deck. As you evaluate the company, think:
Why does this idea make sense now?
How crowded is the space the company is in?
The answer to both questions will likely come from talking to other investors.
One of the first deals I shared with Angel Squad was impeccably timed, but quickly met with: “What makes them different from [early stage company I’d never heard of]?”.
If you’re reviewing a deal without direct connection to the founder, look for market pull, and surround yourself with people who will help you make better bets.