Our Angel Fund’s Investment Checklist

One of the hardest parts of starting a company is making the leap from part-time project to full-time startup. Often, founders don’t have the money to start working on a problem full-time.

If your startup has already found product/market fit, you can easily raise a seed round from VCs. However most VCs, even seed stage ones, typically only invest in companies that have a product, existing customers, and maybe even revenue.

This presents a problem for founders who are just starting up: you need money to find product/market fit, but you’re too early to raise it from VCs.

Angel investors, like Ramen Ventures, help startups cross this “funding gap.” We invest in founders at an early stage - often when you have just a prototype - so you can spend time getting to product/market fit.

Because angels and VCs invest at different stages in a company’s life, they often have different investment criteria. For example, VCs look at hard metrics like customer acquisition, retention, and MRR for evidence that a company is successful today. Angels, however, must look for evidence that founders will build a successful company in the future.

We believe that at an early stage, the best predictor of a company’s future success is its founders. Our investment checklist, which we’ve included below, helps us find founders that we think will be exceptional. It’s a living document, so check back for updates.

Ramen Ventures Investment Checklist

Team

  • Are the founders technically exceptional?
  • Are the founders of good character?
  • Do they make good decisions?
  • Are they hyper-focused on the customer problem?
  • Are we investing in massive strength, not lack of weakness?
  • Do they know a secret to solving this problem?
  • Do they have a history of shipping? (past startups, side projects, OSS contributions)
  • Are they Missionaries, not Mercenaries?
  • Do they have a strong support network? (great incubator/accelerator, peer groups, mentors, and investors)

Problem

  • Is this an important problem for lots of people? (huge but fragmented market or a growing niche)
  • Why can this problem be solved now? Why not before? What’s changed?

Solution

  • Is it first? Is it different? (10x better or cheaper than alternatives)
  • Is the solution crazy (non-consensus) but right?
  • Will the company have a moat? (network or data network effects, structural cost advantages, high switching costs, or intangible assets)?

Match for Ramen Ventures

  • Do we understand this problem and market? (circle of competence)
  • Can we add value to this company?

Risks

  • What are the key risks?
  • What mitigates these risks?

Pre-Investment

  • Did we do founder reference checks?
  • Did we do customer reference checks?
  • Do we understand the deal terms? (share classes, information, pro-rata, etc)
  • Are we suffering from a cognitive bias? (commitment, consistency, expectation, scarcity, etc)

Follow-On Investment

  • What do we know now that we didn’t know when we first invested?
  • Knowing what we know now, would we have made the original investment?

Shout out to Upside Ventures for the awesome A Seed Fund's Investment Checklist that inspired us to write this post.