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

Finding a company you want to invest in is a big deal. The process often involves looking at thousands of pitch decks and taking hundreds of meetings. So when you finally find a team you want to back, it is natural to get excited.

But there is one crucial step before you wire the money: due diligence.

Due diligence is the process of investigating and evaluating a potential investment. But here is what most people get wrong about it: not all investments require the same level of due diligence. Some need lightweight investigation. Others require an exhaustive analysis of financials, team backgrounds, legal documents, and market dynamics.

The scope of your investigation should depend on two things: the size of your check and the stage of the startup.

Due Diligence for Small Checks ($1K to $10K)

You are not expected to spend weeks poring over documents for a $5,000 investment. At this level, your due diligence should be focused and efficient. Here is what lightweight due diligence looks like.

Review the pitch deck. Obviously. But look specifically at the problem/solution fit, the market size, and the team's relevant experience. Does this story hold together?

Meet the founders. Even a 30-minute conversation tells you a lot. Ask about their domain expertise, their customer discovery process, and any early traction. How do they talk about their customers? Do they know their numbers? Are they coachable?

Try the product. If there is a working product, use it. Your firsthand experience as a user will reveal things that no deck or meeting can.

Do basic market research. Who are the competitors? How big is the market? Is this a space where venture-scale outcomes are possible?

Your goal at this level is to be informed and confident in your decision without burning excessive time. You are writing a small check in a high-risk asset class. The math works through diversification, not through perfect diligence on every deal.

Due Diligence for Large Checks ($100K+)

As your investment size grows, so should the depth of your investigation. For checks of $100,000 or more, you want a comprehensive process.

Analyze financial projections and actual revenue. Companies at Series A or later should have real financial traction. Compare projections to actual performance. Are they consistently hitting their own targets? Are the numbers trending in the right direction?

Examine customer contracts and quality of revenue. Look beyond the top-line number. Are these high-quality, recurring customers or one-off deals? What does the retention look like? A company with $1 million in annual revenue from 100 sticky enterprise customers is very different from one with $1 million from a single contract that could disappear.

Review the cap table. Ensure the capital structure makes sense. You do not want to invest in a company where previous rounds have left little room for new investors to see returns. Watch for excessive dilution, unusual preferences, or cap table structures that could leave you underwater even in a decent exit.

Check the data room. Later-stage startups should have organized documentation. If they do not, that is a signal about how they run the business.

Do investor reference checks. Talk to previous investors about their experience with the founders. Your goal is to understand what it is like to work with these people. Are they transparent? Do they communicate well during tough times? Are they coachable? These conversations provide insights that no financial document can.

Stage Matters Too

The startup's stage plays a huge role in what you can even investigate.

For pre-seed investments, there might not be much to analyze beyond the founding team and their idea. No customers, no revenue, no projections, maybe no product yet. Your due diligence at this stage is fundamentally about the people and the opportunity. Does this team have the right background to win? Is the market big enough? Have they done real customer discovery?

As companies progress to later stages, there is exponentially more data to dig into. That is when it makes sense to go deep on customer contracts, unit economics, retention curves, and financial projections.

Elizabeth Yin has emphasized that at the pre-seed level, the team is one of the pillars that almost always matters. But the way the team matters changes from company to company. Sometimes the must-have is domain expertise. Sometimes it is distribution knowledge. Sometimes it is technical depth. Your due diligence should focus on whatever the specific company needs most.

One Important Note for New Investors

If you are new to angel investing, we strongly recommend starting with small checks, even if you can afford larger ones. Writing small checks gives you more shots on goal and more opportunities to learn what makes a great team, what challenges are inherent in each industry, what makes a product sticky, and what customer acquisition really looks like.

That education is priceless. And it is the foundation of better due diligence over time. Each startup you evaluate teaches you something new about what to look for and what questions to ask. At Angel Squad, members build that pattern recognition through shared deal evaluation with 2,500+ investors, learning from both wins and losses across Hustle Fund's portfolio. Explore it at Angel Squad.

Due diligence is not just about protecting your investment. It is a learning process that makes you a better investor with every deal you touch.