Updated: Nov 2, 2021
This is part one of a series on how to assess startups as an angel investor.
Imagine that you’re on the market for a house. You see a listing that interests you. At that moment, you probably have a list of questions in mind: When was the house last renovated? How old is the roof? How close is the grocery store? The list grows as you think about making a serious investment, and you ask your realtor for a thorough inspection and property data.
Investing in a startup is no different, except that when you’re interested in investing in a startup as an angel investor, you have to do a lot of research on those startups on your own. Angel investors find startups often through their network, schedule meetings to meet founders, review pitch deck materials, understand product-market fit, gather information on growth opportunities, and on and on. It’s obvious why angel investors feel like this can be a full-time job.
To make the process easier and remove bias from the startup investment process, the Fundr algorithm was created. The startups are evaluated on 90 pieces of data, generating a Fundr Score™ and giving investors the opportunity to learn deep insights about the startups before they invest. Beyond the fundamental questions of team, traction, and timing, the Fundr algorithm digs in on questions that can have long-term impact on a business, like asking about the intended use of investment. It asks not only how much founders have raised, but also the timeline of existing investment, sources of investment, and how the business model has changed over time and affected investment.
It also helps put seemingly unrelated factors into perspective. For example, a small or non-existent friends and family round could create a lack of confidence in some investors. However, that round could be received differently if investors knew that the founders of the startup grew up on assistance or are recent immigrants. The proof is in the 90 variables that impact startup success, not just the surface details.
The algorithm asks all these questions and more to create the Fundr Score™ so that investors can have increased confidence in their startup investment. In the next part of this series, we'll dive deeper into how to assess these factors as well as what to look for in a startup's data room materials.