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

Here is something that happens to almost every new investor at some point.

You sit down with a founder. They are charismatic. The product demo is impressive. The market sounds enormous. You are nodding along, already picturing the returns. And then someone asks about the unit economics and the whole picture changes.

At an Angel Squad Summit, Elizabeth Yin did exactly this during a live pitch. The founder, Brett Rounsaville, was pitching Hiya Shopping, a text-based commerce platform where users buy products by replying "yes" to a text message. Smart concept. Clean execution. Engaging pitch.

Then Elizabeth started asking about pricing. And then she did the math. Right in front of the founder.

The Questions That Matter

Here is what Elizabeth asked, and why each question is important.

"What is the average cost of the items you are selling?" This establishes the revenue baseline. If the average item costs $50, that is very different from $500 in terms of margin potential and customer acquisition math.

"How much of the revenue goes to you, and how much goes to other players in the process?" This is where it gets real. Every business has costs: suppliers, payment processors, shipping, platform fees. The question is how much is left after everyone else takes their cut.

"What does the margin look like on each transaction?" Elizabeth actually calculated this during the pitch. Based on the founder's cost breakdown, she determined that Hiya was making roughly $10 to $15 on each $50 item sold. Before marketing costs. And before accounting for other revenue streams.

That is a 20 to 30 percent gross margin on the core product. Not terrible, but not a lot of room for expensive customer acquisition either.

Why This Matters More Than You Think

When you are new to investing, it can feel uncomfortable to dig into the unit economics of a business you are evaluating. This is especially true when you like the founder, love the idea, or think the tech is genuinely cool.

But remember: 90% of startups fail. And some of them fail specifically because the unit economics never worked. The profit margins were too small, the customer acquisition cost was too high, and in many cases, this was evident from the very beginning. Nobody asked the questions early enough.

Elizabeth Yin has said that she looks at ideas and unit economics above all else as a first step. If the economics work, many teams can run with it. If they do not, even a brilliant team will struggle. This is informed by her own experience as a founder at LaunchBit, where customer acquisition was the hardest part of the business.

The Full Unit Economics Question List

Beyond the basics that Elizabeth asked at the Summit, here is a more complete set of questions that investors should be asking.

How are you currently getting customers, and through which channels? This tells you about the customer acquisition strategy and whether it is scalable.

How much does it cost to acquire a customer right now? If they do not know this number, that is itself a signal. As Elizabeth has noted, the best founders are incredibly metrics-driven. They understand what levers drive their business.

How have different acquisition channels performed relative to each other? A founder who can tell you that their Instagram CAC is $12 but their Google CAC is $45 has actually done the work. A founder who says "we are doing some social media stuff" has not.

What is your customer lifetime value? How are you calculating it? LTV is easy to inflate. Ask how they are measuring it and over what time period. Three months of data is very different from 18 months.

What is the payback period on customer acquisition spend? If it costs $50 to acquire a customer and they make $10 per transaction, how many transactions does it take to break even? And what does the retention curve look like?

How to Read the Answers

The specific numbers matter less than two things.

First, does the founder know their numbers? A pre-seed company with rough estimates is fine. A Series A company that cannot answer basic unit economics questions is a red flag. Elizabeth Yin's team has passed on founders specifically because they did not understand their own metrics. Not because the numbers were bad, but because the founder did not know them.

Second, is the founder coachable about the economics? During the Summit pitch, Elizabeth suggested that Hiya consider removing shipping costs by having customers pick up items at local spots. What mattered was not the specific suggestion. It was the founder's reaction. Did he get defensive, or did he genuinely consider it?

A founder who reacts positively to economic feedback, even if they do not take your specific advice, is showing you a green flag. They are open to finding ways to improve. And that matters enormously.

Unit economics questions are not about being a buzzkill. They are about protecting your capital and helping founders build businesses that can actually survive. If you want to practice this skill alongside 2,500+ investors who evaluate real deals together, Angel Squad is where that instinct gets developed. Learn more at Angel Squad.

Do the math. Every time.