How angel investors choose startups to back
What angels look for and why they invest: motivations, deal flow, screening, founder fit, market size, traction, and the terms that close a round.
When people talk about startup funding, venture capital firms usually steal the spotlight. But behind the scenes, angel investors play a critical role in getting new ideas off the ground. Angels are often the very first outsiders to put money into a startup, before the business has traction, revenue, or a proven model.
So what makes someone write a cheque to a high-risk, early-stage founder?
Who Are Angel Investors?
- Typically, experienced entrepreneurs or executives who invest their own money.
- Often well-educated, mid-40s to 60s, with strong networks.
- They don’t just provide cash. Many bring mentoring, contacts, and credibility to the table.
What Motivates Angels?
Angels aren’t only chasing financial returns (though that’s part of the story). Studies (Schedder & Arboll, 2014; Mason & Harrison, 1996) show their motivations are a mix of:
- Financial upside – the chance of hitting a “home run” investment.
- Curiosity & learning – staying close to innovation and emerging industries.
- Giving back – supporting the next generation of entrepreneurs.
- Community – enjoying the buzz of working with ambitious founders.
Returns can take years (if they come at all), so non-financial motives are often what keep angels engaged.
How Angels Make Decisions
Investing is not random. It's not a spray-and-pray, hope-for-the-best approach. Angels follow a process that oftentimes looks like this:
1. Deal Origination: opportunities arise through personal networks, pitch events, or specialised platforms.
2. Initial Screening: quick checks: Does the idea make sense? Is there a big enough market?
3. Deep Dive: more thorough evaluation focusing on:
- The founder or team (are they trustworthy, committed, and capable?).
- The business model and market potential.
- Early signs of traction or validation.
4. Negotiation & Contracting: terms of the deal, equity stake, shareholder rights.
5. Post-Investment: some angels get very involved (“hands-on mentors”), others stay in the background.
6. Exit: usually through acquisition or IPO — the hardest part, and often the least predictable.
The Takeaway
Angel investors back startups because they want to be part of building something new. Not just for the money, but for the excitement, learning, and impact. For founders, the lesson is clear: winning over an angel isn’t just about spreadsheets. It’s about trust, vision, and the team behind the idea.