Brian Nichols is the co-founder of Angel Squad, a community where you’ll learn how to angel invest and get a chance to invest as little as $1k into Hustle Fund's top performing early-stage startups

Due diligence sounds intimidating. Images of lawyers poring over documents for weeks. Spreadsheets everywhere. Background checks. Data rooms with hundreds of files.

That's what due diligence looks like for a $50M Series B. For pre-seed and seed-stage companies, it's completely different.

What Due Diligence Actually Is

At its core, due diligence means verifying what founders tell you and uncovering potential problems before you write a check.

For early-stage companies, you're not analyzing five years of financial statements. Most don't have revenue yet. You're not doing detailed market sizing with McKinsey-level rigor. The market will shift anyway.

Instead, you're trying to answer a few key questions: Can this team execute? Is the problem real? Is the solution compelling? Can they acquire customers efficiently? Are there any major red flags that would kill the company?

That's it.

The Founder Assessment

This is the most important part of early-stage due diligence. You're betting on people, not metrics.

Start with their background. What relevant experience do they have? If they're building a fintech product, have they worked in finance? If it's a developer tool, are they engineers who've felt the pain point firsthand?

Look at their relationship with their co-founders. How long have they known each other? How did they decide to work together? What happens when they disagree on something important?

Red flags here include: co-founders who just met at a hackathon, founders who can't articulate why they chose their co-founder, or teams where everyone has the same skillset.

Pay attention to how they respond to questions. Are they defensive when you push back? Do they get excited when discussing their vision? Can they admit what they don't know?

At Hustle Fund, we look for founders with growth mindsets. People who can take in new information and adjust their thinking. If a founder gets hostile when you question their assumptions, that's a problem. You want someone who can say "that's a good point, let me think about that" instead of immediately shooting down every concern.

Understanding the Metrics

Early-stage companies don't have much data. That's fine. But they should know what little data they do have.

Ask about their funnel. How many people visit their site? How many sign up? How many convert to paying customers? What does the retention look like?

If they're pre-launch, ask about customer discovery. How many potential customers have they talked to? What did they learn? How do people solve this problem today?

The specific numbers matter less than whether the founder understands their business. A founder who says "I don't know" to basic questions about their metrics is a red flag.

One founder we passed on couldn't tell us his traffic numbers, conversion rate, or customer acquisition cost. He had been running the business for six months. These aren't obscure metrics. They're foundational to understanding whether the business works.

Compare that to founders who can immediately rattle off their unit economics, explain which channels are working, and tell you exactly what they need to improve. That's someone who's thinking critically about their business.

The Market Reality Check

You need to verify the market opportunity is real. This doesn't mean hiring a consulting firm to build a market model. It means talking to potential customers yourself.

If a founder claims there's a huge pain point in enterprise software, reach out to a few people in that space and ask if they've experienced this problem. You'd be surprised how often "huge problems" turn out to be minor annoyances.

Look at the competitive landscape. Who else is trying to solve this? Why haven't they succeeded? What's actually different about this approach?

Founders love to say they have no competition. That's almost never true. Either there are direct competitors, or people are solving the problem a different way. Understanding the alternatives helps you assess whether this solution is actually better.

What Doesn't Matter (Yet)

Here's what most early-stage investors don't spend much time on:

Detailed financial projections. Founders create these because they think investors want them. But projections for a pre-revenue startup are basically fiction. Nobody knows if you'll hit $10M in revenue in year three.

Perfect data rooms. Yes, you need incorporation documents and a cap table. But seed-stage founders don't need 100 organized folders. What matters more is how they organize information, not whether every document is perfectly labeled.

Background checks on every employee. You'll run them on founders. But spending weeks investigating their early employees? Not necessary at this stage.

Deep technical audits. Unless you're investing in deep tech where the core value is the technology itself, you don't need to verify every line of code. Talk to the team about their technical approach and trust they can execute.

The Questions That Matter

When doing diligence, focus your questions on areas that actually impact outcomes.

On the team: "When was the last time you and your co-founder disagreed on a business decision? How did you resolve it?" This reveals how they handle conflict.

On the market: "How much money are people currently spending to solve this problem?" This validates whether customers will pay.

On traction: "How have your different customer acquisition channels performed?" This shows whether they're tracking the right things and thinking analytically.

On the product: "What's your product roadmap for the next 6-12 months?" This reveals how they prioritize.

The goal isn't to grill founders. It's to have real conversations that reveal how they think.

Spotting Red Flags

Certain things should immediately concern you.

Founders who aren't full-time on the business. If they can't commit fully, why should you invest?

Inconsistent stories. If the founder tells you one thing on a call, but their deck says something different, that's a problem.

Unwillingness to share information. If they won't show you their cap table or basic metrics, they're hiding something or disorganized. Either way, not good.

Overly complex structures. If they've raised on multiple instruments at different valuations and can't explain their cap table clearly, you'll inherit that mess.

No customer validation. If they haven't talked to potential customers extensively, they're building in a vacuum.

The Reference Check

This is underutilized in early-stage investing. Talk to people who've worked with the founders before. Call their previous bosses. Talk to their co-workers. Find investors who passed and ask why.

Don't just talk to the references founders provide. Those are cherry-picked. Do your own research. LinkedIn makes this easy. Find people in their orbit and reach out.

You'd be amazed what you learn. Sometimes you discover the founder is incredible and you should definitely invest. Sometimes you learn they have a reputation for not following through. Better to find out now.

How Much Time to Spend

For a $25k angel check, you don't need to spend weeks on diligence. A few calls with the founders, some market research, and maybe a reference check or two. That's sufficient.

For a $250k check or if you're leading a round, invest more time. Multiple meetings with the team. Customer calls. Reference checks. Review their data room.

The key is proportionality. Match your diligence effort to the size of your check and the stage of the company.

What We Actually Do at Hustle Fund

Our diligence process is straightforward. We meet with founders, usually multiple times. We ask about their background, the problem they're solving, and their go-to-market strategy. We look at their metrics if they have them.

We verify they're incorporated properly, have founder vesting, and their cap table makes sense. We run background checks on founders.

We don't request 100 documents. We don't spend months on diligence. We're trying to assess: is this team capable of building something big? That's the question.

Most of what we learn comes from conversations, not documents. How founders talk about their business tells you more than any pitch deck.

The Bottom Line

Good due diligence at the early stage is about understanding the founders and validating the basics. Can they execute? Is the opportunity real? Are there any deal-breaking issues?

Don't overcomplicate it. Don't waste time on things that don't matter. Focus on the few things that actually predict outcomes.

And remember that due diligence isn't just one-sided. Founders should be doing their own diligence on you. A smart founder will ask for references, check your reputation, and make sure you're someone they want to work with for years.

For investors looking to sharpen their diligence process and learn from experienced angels, Angel Squad offers a community where you can discuss deals, share insights, and get feedback on your investment approach. Good diligence takes practice, and learning from others helps you avoid costly mistakes.