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 in angel investing is weird because most advice tells you to do something that's borderline impossible: investigate a company as thoroughly as a professional VC, but with none of the resources, time, or access they have.

So new angels either go overboard, spending 40 hours researching a $5,000 investment, or they skip due diligence entirely and invest based on vibes. Neither works.

The solution isn't trying to replicate institutional due diligence. It's learning what actually matters at the angel stage and building systems to evaluate those factors consistently. That's where angel investing communities become crucial.

Why Community-Based Due Diligence Works

Here's what happens when you try to learn due diligence alone: you read a checklist of 50 things to investigate, feel overwhelmed, and either give up or start cherry-picking which items you'll actually check. Then you invest, and six months later you discover a huge red flag you completely missed.

Angel investing communities solve this through accumulated pattern recognition. When someone who's evaluated 200 companies walks you through what they look for, you're downloading years of compressed learning. When five people in a community have invested in similar companies and share what mattered versus what didn't, you get signal instead of noise.

Take Angel Squad's approach, they run pitch sessions where members hear from founders, then discuss what they saw. A founder might claim impressive traction, but someone in the community immediately asks about retention rates or points out the customer acquisition cost doesn't pencil out. You learn through exposure to how experienced investors think.

This matters more than any generic due diligence checklist because you see the patterns in real time. You watch how different team dynamics play out. You notice which founders can answer hard questions versus which ones deflect. That pattern recognition becomes your unfair advantage.

The Essential Due Diligence Framework

Professional investors have massive due diligence checklists. Angels need something simpler but structured. Here's the framework most angel investing communities teach, broken into four core areas:

Team Assessment The team matters more than anything else at the angel stage. Why? Because the product will change, the market might shift, but you're stuck with the founders.

Ask about founder relationships. How long have they known each other? Have they worked together before? When did they last disagree about something important, and how did they resolve it? Red flags emerge quickly when you probe here.

Look for domain expertise. Do the founders deeply understand the problem they're solving? The best founders have lived the problem for years before deciding to fix it. Conversely, someone who just discovered an industry six months ago and thinks they can revolutionize it usually hasn't earned the right to do so yet.

Check the cap table. Has anyone else invested? Who? What do those early checks tell you about founder credibility? If experienced angels or smart funds have already done work, that's signal.

Market Validation At the angel stage, you're not expecting hockey-stick growth. You're looking for evidence the founder can get someone to pay for their solution.

Dig into customer conversations. How many potential customers has the founder talked to? What did they learn? Founders who've done real customer discovery can rattle off specific objections, use cases, and buying patterns. Founders who haven't sound vague.

Ask about existing alternatives. How are people solving this problem today? If the answer is "nobody is," that's usually a bad sign. Markets where people don't solve the problem at all are usually markets where the problem isn't that painful.

Understand the business model economics. Even at the earliest stages, founders should have thought through unit economics. They might not have perfect data yet, but they should show their work. Communities like Angel Squad often have members with deep expertise in specific sectors who can quickly tell you if the numbers make sense.

Product and Technology You don't need to audit the codebase, but you should understand what's real versus what's slides.

Ask to see the actual product. Use it if possible. Or better yet, watch a customer use it. You'll learn more from five minutes of watching someone struggle with the interface than from an hour of the founder explaining how elegant their solution is.

Probe on technical risk. What's hard about building this? If the founder says "nothing really," they're either brilliant or naive. Usually naive. The best founders can articulate specific technical challenges and their approach to solving them.

Check for sustainable moats. At the angel stage, the moat is usually speed. The founders can build and learn faster than competitors. That advantage compounds over time.

Financial Fundamentals Angel-stage financials are more art than science, but some basics matter.

Review burn rate and runway. How long until they run out of money? What milestones will they hit in that time? Founders who can't answer these questions precisely don't understand their business.

Understand the fundraising plan. Is this a bridge to a larger round? Are they planning to be profitable on this capital? What happens if fundraising takes longer than expected? These scenarios reveal how founders think about risk.

Look at previous capital deployment. If they've raised before, where did that money go? Did they achieve the milestones they promised earlier investors?

Templates That Actually Work

Here's the due diligence checklist that Angel Squad members use when evaluating deals. It's short on purpose, if you can't complete this in a few hours, you're overthinking it:

Pre-Meeting Prep (30 minutes)

• Review pitch deck
• Google the founders
• Check LinkedIn for connections
• Look up the company on AngelList, Crunchbase
• Note three specific questions based on what you found

During the Pitch (45-60 minutes)

• Take notes on team backgrounds and why they're working on this
• Write down any claims that need verification
• Pay attention to how founders handle difficult questions
• Note your gut reaction to the founders' communication style

Post-Meeting Analysis (2-3 hours)

• Reach out to 2-3 people who know the founders
• Verify key claims (customer numbers, traction metrics)
• Ask someone with sector expertise to review the opportunity
• Calculate basic unit economics based on information provided
• Check if the investment size and terms make sense for you

Most angel investments shouldn't require more than this. If you find yourself going deeper, ask why. Are you genuinely finding important new information, or are you procrastinating on making a decision?

Learning From Failed Due Diligence

Every experienced angel investor has stories about the due diligence they wish they'd done. These lessons get shared in angel investing communities, which is invaluable.

Common mistakes: investing based solely on founder charisma, ignoring cap table complexity, not calling any references, skipping basic Google searches that would have revealed red flags, investing without understanding the business model.

The Hustle Fund team often shares post-mortems with Angel Squad members. When a portfolio company shuts down, they walk through what they missed in due diligence. These sessions are gold because you learn pattern recognition without having to lose your own money first.

The goal isn't perfect due diligence. It's consistent, systematic evaluation that catches the major red flags while moving fast enough to access good deals. That balance only comes through repetition and feedback.

Angel investing communities provide both. You get to practice due diligence on dozens of companies, get feedback from experienced investors on what you missed, and learn from other people's mistakes. That compounds into genuine expertise faster than any amount of solo research could.

Your due diligence process should evolve as you get more experienced. But starting with a structured framework, learning through community feedback, and staying systematic beats winging it every single time.