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Last updated on 2024年8月20日

What metrics do angel investors look for in evaluating a business?

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If you are looking for angel investors to fund your business idea, you need to know what they are looking for in return. Angel investors are individuals who invest their own money in early-stage startups, usually in exchange for equity or convertible debt. They are often motivated by more than just financial returns, such as supporting innovation, mentoring entrepreneurs, or joining a network of like-minded peers. However, they also want to see evidence that your business has the potential to grow, scale, and generate profits in the future. In this article, we will discuss some of the key metrics that angel investors use to evaluate a business and how you can prepare to impress them with your pitch.

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1 Problem and solution

One of the first things that angel investors want to know is what problem your business is solving and how your solution is unique, innovative, and superior to existing alternatives. They want to see that you have a clear understanding of your target market, customer needs, and value proposition. They also want to see that you have validated your problem and solution with customer feedback, market research, and data. You should be able to demonstrate how your solution fits into the market, how it differs from competitors, and how it creates value for customers.

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Roy Morejon

AI Alchemist: Turning Enterprise Dinosaurs into Agile Unicorns | $1B+ Innovation Catalyst
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Angel investors evaluate startups based on key metrics: Problem and Solution - What unique problem does the startup address? - How innovative and superior is the solution compared to existing ones? Market Understanding - Clarity on target market and customer needs. - Distinct value proposition that sets the startup apart. Market Validation - Evidence of customer feedback and market research. - Data-driven insights proving the solution’s relevance and acceptance. Value Creation - Demonstrable benefits and value for customers. - Potential for growth and profitability in the market. These metrics help investors gauge a startup's potential for success and market fit.

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2 Traction and growth

Another important metric that angel investors look for is traction, which means how well your business is performing and growing in terms of customers, revenue, users, engagement, or other relevant indicators. Traction shows that your business has product-market fit, customer demand, and scalability. It also reduces the risk and uncertainty of investing in your business. You should be able to show your traction history, current status, and future projections with clear and realistic numbers and assumptions. You should also be able to explain how you acquired, retained, and monetized your customers, and what strategies you have to increase your growth rate.

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3 Team and culture

The third metric that angel investors care about is the team and culture behind your business. They want to see that you have a passionate, committed, and skilled team that can execute your vision and overcome challenges. They want to see that you have a strong co-founder relationship, a balanced mix of roles and expertise, and a diverse and inclusive culture. They also want to see that you have a clear vision, mission, and values that guide your decisions and actions. You should be able to showcase your team's background, achievements, and roles, and how you work together as a unit. You should also be able to communicate your vision, mission, and values, and how they align with your problem, solution, and market.

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4 Financials and valuation

The fourth metric that angel investors look at is the financials and valuation of your business. They want to see that you have a solid financial plan that covers your revenue model, cost structure, cash flow, break-even point, and profitability. They also want to see that you have a realistic and reasonable valuation that reflects your current and potential value, and that you are offering a fair and attractive deal to your investors. You should be able to present your financial statements, projections, and assumptions, and explain how you calculated your valuation and how much equity or debt you are seeking. You should also be able to justify your ask and show how you will use the funds to grow your business.

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Ruchika Bhalotia

Founder@Finaqo
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In the financial model below information should also be captured : a) Promoter skin in the game i.e. their own funds. How much funds promoter is putting into the business. ? b) Monthly burn rate c) Projected growth in the business d) Customer Acquisition cost e) When will the startup will be self-sustained (from its own cash flows ) f) Additional capital if any to be raised in the future g) Exit payouts and strategies h) Sensitivity analysis

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5 Risks and opportunities

The fifth metric that angel investors consider is the risks and opportunities associated with your business. They want to see that you have identified and mitigated the main risks that could affect your business, such as market, product, customer, competitor, legal, regulatory, or operational risks. They also want to see that you have explored and leveraged the main opportunities that could enhance your business, such as market, product, customer, partner, or strategic opportunities. You should be able to list and prioritize your risks and opportunities, and explain how you plan to address or exploit them. You should also be able to demonstrate your resilience, adaptability, and creativity in dealing with uncertainty and change.

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6 Impact and vision

The sixth and final metric that angel investors look for is the impact and vision of your business. They want to see that your business has a positive and meaningful impact on the world, such as solving a social, environmental, or economic problem, or creating a new or better way of doing something. They also want to see that your business has a bold and ambitious vision for the future, such as expanding to new markets, segments, or regions, or developing new products, features, or services. You should be able to articulate your impact and vision, and how they relate to your problem, solution, and market. You should also be able to inspire your investors with your passion, purpose, and potential.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Wasan Shubbar

Product Manager @ Disguise | Founder & ex-CEO of Flickonic
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As angel investors typically inject capital at the early stages of a startup, where risks are most substantial, underscoring your scrappiness becomes paramount. This term refers to your ability to navigate challenges resourcefully and creatively as it enables them to assess how well-equipped you are to navigate future challenges and stay ahead in the face of competition or potential copycats. Essentially, showcasing your scrappiness not only validates your current success but also instills confidence in your ability to handle the uncertainties that lie ahead.

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Ruchika Bhalotia

Founder@Finaqo
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Angle investors bet on the founding team. The team should have a clear vision and mission and with right mix of team members. Whether the startup is able to solve a larger problem for the Economy and add to the Environment & and sustainability while creating employment opportunities.

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David Willbrand

Chief Legal Officer @ Pacaso | EIR @ Techstars San Francisco | Professor of Startups & Venture Capital @ Michigan Law | Author of “Seed Deals”
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Angel investors focus intensely on the qualifications of the Founder. Specifically, is the Founder: - Master of MRR and Producer of PMF? - First of Her Name? - Queen of the Andals, the Rhoynar, and the First Men? - Khaleesi of the Great Grass Sea? - Breaker of Chains? - Mother of Dragons? - Protector of the Seven Kingdoms? - Rightful Heir to the Iron Throne? Here’s the upside: if you are a Founder with these qualifications, but you still don’t receive funding, you can always torch the investor’s hometown with the breath of your dragon. It’s the little things you know.

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What metrics do angel investors look for in evaluating a business?

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1 Problem and solution

2 Traction and growth

3 Team and culture

4 Financials and valuation

5 Risks and opportunities

6 Impact and vision

7 Here’s what else to consider

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