Three simple things:
- You’re likely to lose your money. Not knowing your experience with investing in startups, let’s make sure that’s explicitly clear. Regardless of the type of startup, 90% fail and Angel Investors aren’t much better at making good decisions. Experienced (proven) Venture Capitalists tend to have better odds so you might want to look to just putting your money into a fund, as a Limited Partner. Either way… consider it an 80% chance that your money is gone. Capable startup investors have the wealth to diversify throughout 10+ startups so that the chance of 1 or 2 wins offsets the losses.
- Get a trusted but very experienced technology advisor. Don’t trust a friend who happens to be a CTO or CIO! Startups a VERY different than operating technology based companies. Find someone who has a track record of success with early stage innovation – turn to them for due diligence.
- Focus on their Marketing. Too many technology based startups are engineer heavy and market light. Economist Peter Drucker noted in the ’70s that only two things create value in business: innovation and marketing – and marketing is the distinguishing of the two. Apple isn’t Apple because of technology. Get a startup CMO advisor to do due diligence with you. Make sure they prioritize how they’ll establish a market share and exit – competitive analysis, costs, channels, etc. If you (or they) think Marketing is Advertising and Promotion, don’t be an investor;