Bet on the Jockey, Not the Horse: What Angel Investors Look for in Startups [Expert Interview]

Many years ago, long before co-founding Altar.io, my colleague Paolo quit his job in investment banking, absolutely convinced he wanted to be an entrepreneur.So he set out to build his first startup, a social events marketplace and recently he told me the full story of what happened next:

"Like most first-time founders, I made some mistakes along the way. Well, maybe more than some. Including going to investors without enough to persuade them to open their wallets.

I specifically remember one conversation in which I presented my idea, in great detail. About 5 minutes into my big speech he turned around and said: 

"Paolo, I don’t give a sh*t about your idea… I need you to show me some traction." 

That set the tone for the rest of my quest. I was aiming at 200k for that pre-seed round and only managed to get around 40k.

Ultimately, I failed to get investments because I had zero traction. I didn’t have the proof investors needed to see that people wanted my product.”

But traction (or lack of it) isn’t the only aspect that angel investors will look at as they decide whether or not your startup is a good bet. So to find out exactly what angel investors look for in entrepreneurs and their startups, Paolo and I sat down with Armando Biondi. Armando is a successful entrepreneur and multiple-time founder. One of his most well-known projects was AdEspresso: a “Facebook ads made easy” tool that was acquired by Hootsuite.Currently, Armando is working on , a lead-scoring service taking its first steps into the market. Besides that, Armando is also an angel investor with over 150 startups in his portfolio. In our conversation, he shared exactly what he looks for in entrepreneurs and their startups, and delved into what you can expect from an angel investor / entrepreneur relationship.

Interview with Angel Investor Armando Biondi 

Paolo: I wanted to start by asking about specifics. So to start, do you focus on one type of business model or vertical in particular? 

Armando: Most of my investments are in SaaS and B2B. There is some percentage of investments in other markets, let’s say there’s representation across the spectrum. 

The vast majority, however, are concentrated in B2B and SaaS which are the business models I know the best. 

Paolo: Is there a particular stage within SaaS and B2B that is interesting for you as an angel investor?

Armando: Yes, I normally get excited about companies when they’re doing between $350k and $2M in annualized revenue. 

It’s unusual for me to invest in companies doing less than $350k/yr. Then, when it gets to more than 2M/yr it’s more of a VC game at that point. 

Paolo: Many young entrepreneurs believe that they have to get funding as soon as possible. With that in mind, do you consider investing in pre-revenue startups?

Armando: Not really and I’ll tell you why. One of the macro trends we’re seeing is that the cost of starting something is the cheapest that it’s ever been. 

So, because of that, you have a ton more companies compared to before. So how do we decide which one is more deserving of investment compared to the others?

Market traction. 

Paolo: I wanted to turn the lens onto angel investors for a moment. Do you believe anyone with wealth or a good salary can be a successful angel investor? 

Armando: No-one becomes great without spending many years working at something. 

However, being an experienced entrepreneur doesn’t necessarily make you make a good angel investor either. 

There are things that you need to know and execute on as an entrepreneur that don’t necessarily help you become a great angel investor.

You can invest a sizable amount of money, that doesn’t make you a good angel investor. A great investor is someone that can get a decent return from the capital he’s invested.There’s a rule of thumb there, about 5%-ish of the companies started every year will get VC funding. 80%-ish just won’t work out. The remaining 15%-ish will barely return you the money you invested. What makes a conversation interesting is that top 5%-ish that will return you 5-10X or more. 

The whole name of the game is, how do you minimize investing in the bottom 80%-ish while maximizing investment in the top 5%-ish.

Paolo: That's interesting, do you think first-time founders can count in that top 5%? Or maybe the better question, do you invest in first-time founders? 

If so, how do you spot promising ones vs. bad ones? Are there common traits you see in a good first-time founder? 

Armando: I do invest in first-time founders. And it’s important to note that being a first-time founder doesn’t disqualify you from being a great founder – far from it. 

What I look for usually is a founder who’s knowledgeable about the space they’re going into. It’s very rare for a founder to succeed if they don’t know the space.

I look for a founder with a unique perspective on an unsolved problem in the space. More importantly, I look for someone uniquely qualified to solve that problem.Thirdly, does he have the hustle to hang in there when things get tough? Because they will get tough without a doubt. 

So courage, ability to hustle and uniquely qualified to solve a real problem. 

The last thing we need to look at is whether or not the market is already responding to it positively. So traction is an important part. 

Paolo: And how do you go about discovering those key traits? 

Armando: You can look at what they did before. Or even ask them; 'what’s one particularly hard challenge they had to solve.' That alone is worth a lot and tells you how they navigate their decision-making process. 

Paolo: We’ve already mentioned that many entrepreneurs look for funding as soon as possible. This begs the question, when should a founder approach an angel investor? 

Armando: There’s not really a “wrong” time to approach an angel investor. There are different lifecycles of a company. From early-stage to late stage. Different stages have different requirements in terms of traction and validation. As well as different valuations that you can ask for and different interested angel investors. 

So you can start talking to angel investors before you have a product as long as you realize the valuation will have to be relatively low. Because you don’t have anything valuable, besides yourself and your team. (This points back to what to look for in a founder.) Or you can fundraise later. When you have a product out there and some traction. Then you can ask for a higher valuation and a bigger check. So it’s more a question of what’s the sweet spot of the people you want to talk with. There are different types of angel investors for different stages of the startup lifecycle. Some are more valuation sensitive, they’re willing to take more of a risk as long as the valuation is low. Others will need to see more validation in terms of work, validation, go-to-market strategy, traction… and they’ll be willing to go for a bigger valuation for that. It’s not like a right or wrong time. 

Altar.io Tip

It’s never too early to start building relationships with potential stakeholders, whether it’s an advisor, potential hire or investor. For example, I recommend reaching out to investors long before you need their money. Tell them about your idea, get their feedback and ask them what kind of KPIs they would want to see to consider investing. Then, when you’ve hit those KPIs, it’s going to be very difficult for them to say no to investing in you.

Paolo: As you said, traction and go-to-market strategy are important. When startups approach you is pure growth the most important thing, or the business model behind that startup? 

Armando: To a certain degree, the two overlap. Most of the time the thing to look for is growth, but growth is dependent on a viable business model.

Paolo: We often talk about the importance of a startup team when it comes to investment decisions. What do you look for in a startup team that will give you the confidence to back them?

Armando: A team that can deliver the product and generate positive feedback from some customers. I need to see an initial go-to-market approach that is being executed on. Delivering some form of growth. 

Paolo: Let’s look at the other end of the spectrum for a moment. What are the most common mistakes founder’s and their teams make when pitching their project? 

Armando: Focusing too much on the product not enough on the . 

The best product doesn’t necessarily win. A good enough product with a great go-to-market has more chance of success than a great product with a shitty go-to-market. 

Paolo: Absolutely. We see a lot of founders focusing on making a beautiful, perfect product, instead of focusing on launching and iterating their product.

Now let’s dig into the details: which documents do you want to see from a startup before deciding to invest? 

Armando: An investment deck or an executive summary. 

Paolo: And how long does it take for you to understand if this is a good investment or not? 

Armando: Usually a few minutes to understand if it’s a no. It takes a little longer to decide if it’s a yes. 

Usually, I don’t care too much about who else is involved, like other angel investors or even funds. I bet on the fact that you can tell a story at an early stage and wrap it up in a very nice package that people will believe. I don’t do a lot of due diligence.I look at the team, the founder(s), the product and the go-to-market strategy. I look for the revenue and ask myself can that value become 20, 50, 100 time what it is today.

The most important questions are:
1. Can the founder and their team execute on the business vision?
2. What (if anything) can prevent the market from adopting it?

Paolo: Now, on the other side of the coin, what are the biggest red flags for you?

Armando: Confusing descriptions surrounding the problem. 

If you cannot articulate the problem you’re trying to solve clearly, how can you articulate the solution clearly?

How can you articulate the go-to-market? How do you plan to articulate the business model around it? 

Paolo: Now I’d like to take a closer look at the working relationship between an angel investor and an entrepreneur. As a founder, how close and committed can I expect an angel investor to be? 

Armando: Personally, the way I invest my time and capital are very different. At this point in my career, I value my time significantly more than I value my money. Therefore it’s easier for me to cut a check and touch base now and then without investing a lot of time. 

There are situations when my time is valuable to a company and I take that opportunity to contribute with value. In these moments I am more involved and more like an advisor. For me, however, that always requires some additional vested interest in the company. Again, from my perspective, cash and time are very different commodities. 

I can make money, I can’t make time. 

Altar.io Tip

It’s important to update your investors regularly. We recommend checking in with your angel investors at least once a month in the form of a meeting, or investors email. Updating them on your startup’s progress not only shows them they made the right choice investing in you, but it also allows them to give you advice moving forward. 

Paolo: A few days ago we were discussing one of our clients with you, to see if they would be a good fit in terms of investing. In that conversation you mentioned that you usually don’t work with entrepreneurs who request an NDA, can you take a moment to explain why? 

Armando: For me, if you ask for an NDA the conversation is over. There is a level of trust where you need to be willing to give to people playing this game, as a founder. 

Also, as an investor, I look at around five pitches a day. So it’s very likely that something you’re pitching me has already come across my desk in one form or another, and is bound to again. 

If I sign an NDA I’m prevented from investing in a similar company purely because you asked? I’m sorry it makes no sense.

Moreover, asking for an NDA implies there is some intrinsic value in the tech you’re building, and these days that’s mostly not true. The companies where there is valuable intellectual property are a fragment of the companies that are built every year. That’s where patents come in. If you can’t get a patent then the value isn’t in the IP. It’s in the go-to-market, growth, expertise, competitive landscape. And while it’s valuable it’s not IP so an NDA is useless. 

Rui: Armando, thank you for sharing your valuable insights on the angel investor/founder relationship, I just have a few questions to finish off. Firstly, what’s the biggest lesson you’ve learned as an Angel Investor? 

Armando: For big outcomes to happen, timing and market are more important than most people think. 

It goes back to the points above about product vs. go-to-market strategy. 

An ok product with a good enough go-to-market in a growing industry is more likely to do well vs. a great product with a great go-to-market in a shrinking industry.

 and the market are more important than most people give credit for. 

Rui: With that in mind, how do you feel about companies that are trying to create a whole new thing? Where it’s impossible to put a competitor benchmark to it. What’s your position? 

Armando: It’s very possible, otherwise we would need to accept that everything valuable has been done, which is very much not true. 

It’s entirely possible, but a lot harder. You need to have exceptional founders and an exceptional combination of timing, market, go-to-market. Think about Uber, it never existed before now it’s a $100B+ company. It’s not impossible but it’s harder.

Rui: Can you recommend one resource that is invaluable for entrepreneurs?

Armando: The design aspect, both visuals and UX/UI. You can be significantly more memorable with a good design or for example a good onboarding experience. Those things usually get missed. 

Thank You, Armando… 

…For sitting down with Rui and me to share your insights on the relationship between angel investors and entrepreneurs. It’s clear from our conversation, that one of the most important things that angel investors want to see is traction. So, with that in mind, my best advice is to  and go out and get a handful of customers. These early adopters will help you show angel investors that people want your product. And while traction is not the only factor in an angel investors decision, having some should go a long way towards persuading them your startup is a good bet.For more information on funding, check out the FAQs listed below. Good luck & thanks for reading.

FAQs Surrounding the Topics Covered in This Conversation

What Is an Angel Investor? 

Angel investors are wealthy individuals who use their own money to back ventures. They invest smaller amounts of money ranging from a few thousand dollars up to a million and are more likely to take bigger risks (like backing new startups without a proven track record).

What’s the Difference Between an Angel Investor and Venture Capitalist?

Angel Investors use their own money to invest in startups. Venture Capitalists, however, are people – or firms – that invest other peoples money to invest in startups. Venture Capitalists usually come into lay later on in the .

How Do I Find Angel Investors? 

Finding angel investors can be a challenging part of your startup journey. Firstly, I would recommend looking for investors who are active in your industry. Talk to other entrepreneurs, see if they know anyone and if they can give you a warm introduction. Failing that, websites such as  and can help you find angel investors from a wide array of industries and verticals. 

When Should I Approach Angel Investors? 

It’s never too early to start building relationships with potential stakeholders, whether it’s an advisor, potential hire or investor. For example, I recommend reaching out to investors long before you need their money. Tell them about your idea, get their feedback and ask them what kind of KPIs they would want to see to consider investing. Then, when you’ve hit those KPIs, it’s going to be very difficult for them to say no to investing in you.

What do Angel Investors Look for in a Startup team?

Investors, like most educated gamblers, bet on the jockey – not the horse. Making you and your team one of the most important assets for successful fundraising. : 

• Character – Can they trust you and your team? 
• Confidence – If you don’t have confidence in your idea, how can an investor be confident that you’ll be able to execute on it and build a successful product?
• Coachability – Do you listen? Can you learn quickly and effectively? Will you take advice from someone more experienced than you? 

These three factors are essential for a successful partnership between you and your angel investors.

This article was originally published by Paolo Dotta.