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

Most beginner angel investors overcomplicate startup evaluation. They try to become instant experts on TAM calculations, unit economics, and competitive landscapes before writing their first check. Then they get paralyzed by everything they don't know and either miss opportunities or invest based on gut feeling.

There's a simpler path. Use a checklist. Not a 200-point institutional VC checklist, a focused framework that catches the major red flags and identifies the key signals that actually matter at the angel stage.

This is the checklist that actually works when you're starting out. It's built from watching hundreds of early-stage investments play out and learning which questions correlated with success.

The Five-Minute Screen

Before you spend hours on due diligence, invest five minutes in basic screening. Most opportunities should get filtered here.

Is this in your wheelhouse? Angel investing works best when you have some edge. Maybe it's industry knowledge, geographic proximity, technical expertise, or strong pattern recognition in a specific category. If you're looking at a deal completely outside your circle of competence, that's not automatically disqualifying, but it should make you cautious.

Does the basic premise make sense? Can you explain what the company does in one sentence? If not, that's often a red flag. The best businesses solve clear problems in straightforward ways. Complexity usually means the founders haven't clarified their thinking yet.

Are the founders raising from the right people? Look at who else is involved. If experienced angels or smart micro-funds have invested, that's signal. If it's only friends and family after 18 months of operation, ask why institutional money hasn't shown interest.

Does the timing feel right? Some great ideas are too early. The technology isn't ready yet, or the market isn't desperate for a solution. Other ideas are too late, the window closed. Timing is hard to evaluate, but obvious timing mismatches should disqualify opportunities quickly.

Can you actually afford this? Don't invest money you can't afford to lose completely. If writing the check would stress you out financially, pass. Angel investing requires accepting that most investments go to zero.

If a deal passes this five-minute screen, dig deeper.

The Team Deep Dive

The team determines everything at the angel stage. Products change, markets shift, but you're stuck with the founders. Spend time here.

How long have the founders worked together? Co-founder relationships forged under pressure tend to hold up better than partnerships formed specifically to start this company. Ask how they met, how long they've known each other, and whether they've worked together before. Red flag: co-founders who just met at a startup weekend three months ago.

What's the equity split? Healthy founding teams have clear equity agreements. Massive disparities (like 90/10 splits) or complete equality among four co-founders often signal trouble. You want something rational that reflects contribution and risk.

Have they done this before? Prior startup experience isn't required, but it helps calibrate expectations. Second-time founders usually move faster and make fewer unforced errors. First-time founders can certainly succeed, but they'll likely need more help navigating common pitfalls.

Why are they uniquely positioned to solve this? The best founders have lived the problem for years. They bring domain expertise, networks, and insights that outsiders lack. Be skeptical of founders who just discovered an industry six months ago and think they can revolutionize it.

How do they handle pressure? Ask about their lowest moment so far. What happened? How did they respond? Startup building involves constant setbacks. You want founders who process stress productively rather than spiraling.

What's their Plan B? This question reveals a lot. Founders who say "there is no Plan B, we're all-in" sound committed, but it can also signal desperation. Healthy founders acknowledge they're taking risk but aren't betting their entire lives on one outcome.

The Market Reality Check

Markets matter enormously, but many beginners analyze them wrong. You don't need to calculate exact TAM (total addressable market), you need to understand if the problem is real and painful enough that people will pay to solve it.

Are customers already spending money on this problem? If nobody currently pays to solve this problem, you're not looking at a market, you're looking at missionary work. Possible exception: the problem is so new that solutions don't exist yet, but you need strong conviction that people will pay when solutions arrive.

How are people solving this today? Understanding the status quo is critical. If the answer is "spreadsheets and manual processes," that's often a good sign, there's clearly a need, but nobody's nailed the solution yet. If the answer is "they're not," dig deeper into why.

Why now? Something should have changed recently that makes this solvable now when it wasn't before. Maybe it's new technology, regulatory changes, market maturity, or shifting customer behavior. "Why now" is one of the most important questions in venture investing.

How fragmented is the market? Fragmented markets with no dominant player can be great opportunities. Markets with strong incumbents require a clear wedge strategy. Markets where previous well-funded attempts failed need careful evaluation.

The Product and Traction Test

At the angel stage, you're not expecting massive scale. You're looking for evidence that someone will pay for this solution.

Does a real product exist? Not slides, not prototypes, actual working software or product that customers can use. If the founders are still in ideation phase, that's extremely early for angel investment. Possible exception: incredibly experienced team with strong track records.

Have any customers paid money? One paying customer is worth more than 100 free users. It proves the value prop works and someone trusts the solution enough to spend money. Ask about the sales process: how long did it take, what objections came up, how did they close?

What does usage look like? For free products, dig into engagement metrics. Are people using it weekly? Daily? Sporadically? High engagement indicates you're solving a real problem. Low engagement suggests you've built something nice-to-have but not essential.

What's the retention rate? Users who stick around month after month signal product-market fit. High churn suggests the product isn't delivering value. Ask about cohort analysis, are newer users retaining better than earlier ones? That's a great sign.

What have they learned? The best founders can articulate specific insights from customer feedback. They've talked to dozens of potential users, run experiments, and iterated based on what they learned. Vague answers here are red flags.

The Fundraising Reality Check

How founders approach fundraising reveals a lot about their sophistication and judgment.

Is the valuation reasonable? At the angel stage, valuation matters less than at later stages, but completely detached valuations signal founders who don't understand markets. If the company has zero revenue and no product but wants to raise at a $50 million cap, ask why.

What are they raising for? Founders should have a clear plan for capital deployment. Ideally with specific milestones: "We'll use six months to build features X, Y, Z, then six months to acquire our first 50 customers, then we'll raise a seed round." Vague plans or "we'll figure it out" are red flags.

What happens if it takes longer to fundraise? Fundraising always takes longer than founders expect. How much runway do they have? What's their burn rate? Can they extend runway if needed? Founders who haven't thought through this haven't thought through risk.

Who else is interested? Deal momentum matters. If other quality angels or funds are investing, that's positive signal. If you're the only person interested, ask yourself why. Maybe you see something others missed, or maybe you're missing something obvious.

The Investment Structure Check

Don't skip this. Bad deal structures can kill otherwise good investments.

What instrument are they using? SAFEs are standard for angel rounds. Priced rounds at the angel stage are less common. Convertible notes happen. Make sure you understand what you're signing.

Are there major cap table issues? Look for red flags: massive advisor grants, weird share classes, significant debt, or previous investments at concerning valuations. A messy cap table can torpedo future fundraising.

Do you get pro rata rights? Pro rata lets you invest in future rounds to maintain your ownership percentage. Not essential for small angels, but nice to have if the company succeeds.

Are there strange side letter terms? Sometimes founders offer special terms to certain investors. Make sure you understand what everyone else negotiated. Large differences can signal problems.

The Gut Check

After working through the checklist, pause and do a gut check.

Do you actually like these people? You might work with these founders for a decade. Do you enjoy talking to them? Do you trust them? Do they handle disagreement well? These soft factors matter enormously.

Are you excited about this? Angel investing works best when you're genuinely interested in the space. If you're investing purely for financial return but don't care about the problem being solved, that's fine, but acknowledge it.

Would you use this product? You don't have to be the target customer, but if you see the product and think "nobody would pay for this," trust that instinct.

Common Beginner Mistakes

Watch out for these patterns that trip up new angels:

Investing in ideas rather than execution. Ideas are worth almost nothing. Execution determines outcomes. Evaluate the team's ability to execute more than the idea's novelty.

Overweighting your personal preferences. Just because you wouldn't use a product doesn't mean it's not valuable. Just because you think something is cool doesn't mean it's a business.

Ignoring the competition. Founders who claim they have no competitors are usually wrong. Either they haven't researched carefully enough, or the market doesn't exist yet. Neither is encouraging.

Skipping reference calls. Talk to people who know the founders. Talk to early customers. These calls reveal things you'd never learn from the founders directly.

Investing too small to matter. If you invest $1,000 in a company that returns 100x, you made $100,000. Life-changing? Probably not. Size your investments appropriately for your goals and financial situation.

When to Say No

Most deals should be no. That's not pessimism, it's math. Even top-tier VCs pass on 99%+ of opportunities they see. Angels should have similar or higher bars.

Say no if:

• You have persistent doubts after due diligence
• The founders won't give you straight answers
• The deal structure feels weird and they won't explain why
• You're investing because you feel pressured
• The opportunity exists mainly because nobody else wants it

Saying no is always easier before you invest than after. Don't talk yourself into marginal opportunities.

Putting the Checklist into Practice

This checklist only works if you actually use it. Here's how:

Create a simple template with these questions. Fill it out for every opportunity. Even when you think you'll remember your analysis, write it down. Your memory will fail you when evaluating your 20th company.

Share your analysis with more experienced angels and ask for feedback. Angel investing communities like Angel Squad are built for this, members regularly share their evaluations and learn from each other's perspectives.

Track your decisions and results over time. Did your initial assessment hold up? What did you miss? What did you overweight? That feedback loop is how you get better.

Gradually add sophistication as you gain experience. This beginner's checklist intentionally omits some nuances that matter to experienced investors. As you see more deals, you'll develop your own additional filters and frameworks.

The goal isn't to become a perfect evaluator before you invest, perfect evaluators don't exist. The goal is to have a systematic process that catches the most common failure modes while moving quickly enough to access good opportunities.

Angel investing isn't about getting every decision right. It's about improving your hit rate year over year through better judgment, developed through practice and feedback. Use this checklist as your foundation and build from there.