We all know that every start-up or early-stage venture is risky, but also know 'high risk could mean high reward'. Every investor has his own “rules of thumb” on what makes him decide if this is too high a risk for his or her investment taste.
Yet, it’s still worthwhile to understand potential risks to minimize loss of money.
Some angels are focused on just the return and look for traction and revenue numbers. Others have a thesis and look for companies that fit that thesis. Others are looking for founders that they love.
In all cases, if it is a hardware or software concept and early stage, you might want to ask an experts opinion!
We all love toys, new ideas, shiny new trinkets.... Part of the fun of investing in early-stage companies relates to the joy we get in trying out new products or envision how the world will be a better place when a new device comes to market (e.g., medical).
But you have to look beyond the prototype, ignore the pretentious product demo, and delve into the technology before you write that check! What does it mean to “really delve into technology”? What can one do, without strong technology knowledge? Are we talking about doing a full code review on a software product? How? Some investors would say you need to dig this deep. But there is a considerable cost in this level of effort in both time and money. And you shouldn't spend those costs for such early stage investments.
You will need to get a basic understanding of the product, the (technical) capabilities of the team, the way it is built and what kind of technical debt has been created to date.
We have found a way to help you! With over 300 tech reviews a year, we have developed a methodology about potential product development risks at a young company. To us, it is a lot easier to detect anomalies and/or figure out the experience a developer has. We can help you, for example, to differentiate between: