Angel investing · Angel investor

As an angel, how do I check a startup's finances?


Last updated on August 15th, 2017

I'm interested in investing a five figure amount in a early stage startup. I'm inpressed with the 3 and business plan. I've reviewed a contract they landed with a big client and spoken with the client. What else should I ask about?

The startup says they conducted a beta test and raised some modest seed funds. I've seen a financial statement they created, but would it be inappropriate to ask to see a bank statement?

Valerie Davisson Strategic CFO for Growth Companies

August 15th, 2017

Angel investing can feel like an expensive way to play the lottery. As an angel investor, what is your goal for investing in this start up? Does it meet YOUR investment criteria? When do you expect a payback? What if you don't fund the start up now, but in 6 or 12 months? Will the start up exist if you don't fund?

Your due diligence needs to be far broader than bank statements and a business plan.

Due diligence should encompass at least these areas:

1. Financial - bank statements, financial statements, and a financial forecast. What is the total anticipated amount of money required to fund the venture to revenue generation? What percent of that amount are you personally funding? What is the plan to raise the remainder of the money needed?

2. Legal - copies of all legal agreements, vendor contracts, and customer agreements (if any), employee agreements, incorporation documents

3. Sales & Marketing - what is the specific marketing plan? how will the company accomplish the revenue goals? are the estimates realistic? how do you know?

4. Product - what is the product? how is it different than competitive products? if it is a brand new product, why will customers adopt it? How can you continue to test the product at the lowest cost possible to gauge customer acceptance/willingness to buy? how much will it cost to develop a product that can sell. How will they measure milestones?

5. Founders - do background checks. Do they have poor credit scores? Call references supplied by the founders. Randomly reach out to people on LinkedIn and ask for feedback. Do these founders have a track record of other ideas or businesses? Do they owe anyone money? Are there any lawsuits from prior ventures?

This is just a starter list. Good luck.

Valerie Davisson, Outsourced CFO, Boston

Jakub Kostecki

Last updated on August 17th, 2017

Hi Anonymous,

I do third-party startup BI and due diligence for startup investors -

From my experience of vetting hundreds of startups for investors I've reached the clear conclusion that most startups lie - about 75% of them lie on their decks, about 55% lie on their Linkedin profiles (we're working on publishing our findings) and even more lie when they are pitching (because they can say anything and don't leave a trace). They're not necessarily trying to 'put one over on you', but they're lying to themselves and repeating those lies to you. First of all, as an early-stage investor you will be in that company for anywhere from 7-10 years (on average) so you do have the right to ask FOR ANYTHING. If they are a red-hot company that isn't struggling with raising money they might have a problem with this, but that's going to tell you a lot about them in and of itself. There are plenty of stories out there when Uber said 'no due diligence, you have to make up your mind in an hour' and we see where we are with that.

The main difference between my answer and those of the others here is that I don't believe that what you receive from a startup is true - if they give you a marketing plan then the numbers usually won't reflect reality; if they give you a list of customers then it usually doesn't reflect who they sell to and so on and so forth. Trust but verify every single piece of information. If they tell you they've been buddies for 10 years don't ask for pictures from 2007 and 2017. Ask for proof of a relationship in every one of those 10 years (goes to team cohesion, one of the top 3 factors for failed startups).

We literally check several hundred things for our clients, but here are 5:

a) take their deck, one pager, AngelList profile, executive summary, Linkedin profiles, website and anything else they published and fact check it - if they say they have 30 years of experience in an industry then check that; if they say they went to a given college check that (many founders fib here) - it doesn't really matter where they went to school (in my opinion), but it's important to know if that's something they would lie about or not; if they say they have 7 clients check if they really do by speaking to at least 3 people with every client (for large enterprise co's) and 1-2 people for small businesses;

b) ask for the financial statement that is closest to how they bill, meaning if they bill through Braintree or PayPal ask for a report straight through that. A bank statement can be massaged in a lot of ways;

c) figure out how they acquired this customer who you spoke to. Was the customer acquired through their standard sales process - the one that is repeatadble and has a CAC assigned to it - or was it acquired through a friend of a friend or even a college buddy or you were even speaking to a friend of 20 years on the phone and it will take 20 months to acquire their next customer;

d) ask them to acquire a customer in front of you. Get together in an office and tell them "sell to one customer within the next 60 minutes". They can succeed or not, but you'll quickly see if they know what they are doing, if they know how to do enterprise / business sales and if they have the hustle to increase revenue. You'll be able to tell if they need a little bit of coaching to close more deals, or if they are total amateurs who are afraid to cold call;

e) sit with the product for a day. Use it. Call the customer again and ask them how they will use it (or are using it). Make sure the product is really a product and not an MVP, prototype, wireframe, etc. If they're asking for money for sales dev and operations and claim that the first version of their product can hit the market then make sure you use it yourself... extensively.

Hope this helps.

Elia Brodsky

August 15th, 2017

Any investor does a "due diligence" of the financials, often time requesting a financial statement produced by the CPA. You should definitely ask about debt, burn rate (regular monthly spending) and equity distributed for their seed funding...

Gerald Reihsen Aggressive & innovative business building, deal-making, capital raising entrepreneur & consultant

August 15th, 2017

It's entirely appropriate to see a bank statement and conduct as much due diligence as you like. If you wish I'd be happy to provide you a due diligence checklist. Only be aware that this is a very early stage company and will be far from perfect. When it comes to start-ups, the order of important factors toward success are (1) timing of the company's concept to the market, (2) quality of the team and their appropriateness to executing on the opportunity, (3) sufficient capital or likelihood of obtaining sufficient capital to execute to revenue positive dynamics. Feel free to email me at and I can provide the due diligence checklist, among other things.

Paul Garcia marketing exec & business advisor

August 18th, 2017

Jakub, I wish I could "love" your answer and not just upvote it. You have provided extremely practical examples of more than one method used to verify the reliability of a company's finances. The term due diligence gets thrown around a lot, but I would wager that very few people here have ever been the subject of the kind of diligent examination your company offers. You're talking about serious Wall Street advisor stuff, at the level where fund managers will insert someone into a company to rate it accurately.

A special thank you from me for this very detailed and illuminating look into due diligence. It's something that every entrepreneur should be reading. I'm going to see if CFL will publish your informational note in their company blog.

Gaston Martin Cofounder & Ceo of Bext. Founder and partner at Voxel Ink. Strategic, Team builder, hard worker, MBA

August 15th, 2017

If you are going to invest 5 figures in a start-up business, you can ask them to show you everything. After all, you want to be sure that everything is real and confirm what the final statement said. Good luck!!! GASTON MARTIN

Mike Makuch Software Engineer / CTO / Cofounder / Consulting

August 15th, 2017

Certainly appropriate. An investor naturally wants to know and is entitled, customarily, to know everything there is about a company. It's simple: you either get the info you want or you walk away.

Gerardo Calero Ideas maker, Autodidat, Team Leader, Hardworking

August 15th, 2017

No, sir, it´s your money and you need to be sure where you are putting it. Remember not everything shining is Gold. People cannot get mad because you want to see all angles of investment. I would be happy you can be friend since the begnining including you name a lawyer to see and anyze legal contract.


Almik Singh Strategist & business planner , aimed on creating a better future for people and making a lot money

August 18th, 2017

You should check the versatility and ideology behind the plan .. you will be able to see the results for yourself

Ran Fuchs Senior executive passionate about new tech.

August 18th, 2017

It all depends on the state of the startup. If it is a post revenue startup they should have auditor/ accountant, and tax statement. If it is pre-revenue startup you will often have to trust the founders. If you don't trust them completely, then early revenue numbers will make no difference anyway.