An angel investor typically looks for two things when evaluating a startup—huge market opportunity and an excellent founding team. From my experience in angel investing over the past few years, I have come to realize that each time one evaluates a startup, it is a new experience, thus it is better to be more open then have any rigid rules.
Angel investors are mostly looking at a deal flow where companies are operating in new markets. In such cases, one needs to understand whether the product that startup is developing is “Oxygen" or “Aspirin" for the target audience. If the product is only nice-to-have then the market for the product could be too small. As a heuristic, if the obtainable market for the company is less than ₹500 crore, I would treat this as a red flag even if I am in love with the product or the founder. I have had few experiences where deals have fallen off at the negotiation stage. Once an entrepreneur asked for employee stock ownership plan (ESOPs) in order to justify the market salary they had forgone, which was completely unacceptable to us. There are other instances where I have seen founders hung up on expected valuations and not looking at the larger picture. An angel investor has to also be swift, flexible and sometimes even instinct-driven. I missed a few opportunities for not following this. I remember missing an electric battery startup which was building 50X better solution than existing batteries, while I was enchanted by their superior tech but it was a pre-revenue company and thus I was not sure whether we should participate or not. The startup was able to quickly close their round and I understood the importance of being swift and flexible.
Sometimes one should be willing to pay a premium valuation for a premium team. You can’t ignore sectors because of a strong negative bias. As I have understood, there is never a perfect company which will tick all the boxes in your checklist. It is important to have an investment process and keep on refining the same but one has to be flexible. Do remember, it is all about a great team!