A checklist is only as good as the doubt behind it. Tick every box on a weak deal and you've documented your way into a bad decision; the boxes don't decide anything, you do. So treat what follows not as a form to complete but as a set of questions designed to make you uncomfortable in the right places before your money is somewhere you can't get it back.
That matters because angel diligence is unusual. At the seed stage there's barely anything to verify - a few months of revenue if you're lucky, a product that changes weekly, a market the founders are betting will exist in a shape it doesn't yet. You can't model your way to a verdict. The honest aim isn't to be right; it's to be wrong less often, and to know what you're risking when you are.
The team: can these people build it?
At seed this is the biggest line of inquiry, because the company will pivot several times and the founders are the one thing that carries through. Work the obvious questions hard. What have they done before, and did it work? Have they worked together, and how do they handle disagreement? Do they answer the awkward question directly or steer around it? Take up the reference calls offered, and try to find one or two that weren't.
The polite term is founder-market fit. The blunt version: do these specific people have any business winning this specific race. A founder who controls every scrap of information, or bristles at scrutiny, is telling you something now that you'll learn again later at greater cost.
The market and the product: is the problem real?
Three questions sit underneath this one. Is the problem genuine and painful enough that someone will pay to solve it? Is the market big enough to matter? And is anyone already solving it better? You're looking for what would have to be true for this to become a large company rather than a small one - and whether that chain of assumptions is plausible or wishful.
Then the evidence that any of it is working: early revenue, active users, pilots, signed letters of intent, a waiting list that converts. The numbers won't be big at this stage and that's fine. What you want is a credible signal that someone, somewhere, wants this enough to part with money or time for it. Be wary of traction that's all vanity - downloads that never return, sign-ups that never pay.
The boxes don't decide anything. You do.
The financials: how long does the money last?
How much runway does this round buy, and what does the company have to achieve before it has to raise again? That second half is the one founders gloss and angels forget. A round that funds eighteen months but only buys twelve months of progress is a round that ends in a down-round or a scramble. Look at the burn rate, the basic unit economics as far as they can be known, and whether the spending plan matches the milestones the founders say they'll hit.
The cap table and the legals: who owns what, and is it clean?
Pull the cap table and read it properly. Who already owns what, and does the split make sense for a company this young? A departed founder still sitting on a big slice, too much equity handed to early backers or advisers, an option pool about to dilute everyone - any of these can sink an otherwise good company. This is also where the round's term sheet and valuation deserve real scrutiny, because the price you pay going in shapes every return that comes out. A valuation that's asserted rather than reasoned is a question, not a fact.
On the legal side, confirm the company actually owns its intellectual property - that it isn't sitting with a former contractor or a founder's previous employer - and check for anything nasty buried in earlier agreements, outstanding litigation, or unpaid liabilities waiting to surface. You don't need to be a lawyer to ask whether one has looked.
The tax position: do the SEIS/EIS reliefs hold up?
For UK angels the tax treatment isn't a footnote - it can be the difference between a tolerable loss and a painful one. So it belongs on the checklist, not in the post-mortem. Two questions: does the company qualify for SEIS or EIS relief, and does your route into the deal let that relief reach you?
The first signal to look for is HMRC advance assurance, the pre-investment indication that the company looks eligible. It isn't a guarantee, and final relief still depends on the SEIS3 or EIS3 certificate the company issues after the round, but its absence on a deal that's implying tax relief is a flag worth raising. The headline investor reliefs are fixed. SEIS gives 50% income tax relief on up to £200,000 invested per tax year, with a three-year minimum hold and gains on the shares exempt from capital gains tax if you've held three years and received the income tax relief. EIS gives 30% on up to £1,000,000 per tax year - or £2,000,000 where at least £1,000,000 goes into knowledge-intensive companies - also with a three-year hold. Both schemes carry loss relief if the company fails, and relief can be carried back to the previous tax year.
On the company side, the ceilings are tighter and they move. To qualify for EIS a company must generally have gross assets no more than £30 million before the share issue (£35 million immediately after), fewer than 250 full-time-equivalent employees, and be within seven years of its first commercial sale; it can raise up to £10 million a year and £24 million over its lifetime, with higher limits for knowledge-intensive companies. SEIS is for the very earliest stage: the company must have been trading less than three years, have fewer than 25 full-time-equivalent employees and gross assets under £350,000 at the share issue, and can raise up to £250,000 in total under the scheme. These figures change periodically, so check the current position in HMRC's EIS guidance and the guidance for investors rather than taking a founder's word for it.
The second question is about your route in. Invest directly, or through a nominee arrangement where you're treated as holding the shares yourself, and relief flows in the normal way. Invest through a special purpose vehicle that holds the shares itself and you own the vehicle rather than the company - which usually breaks the SEIS/EIS chain. A syndicate that's done the work will tell you which one you're in before you commit. And you generally need to be a UK taxpayer to use the reliefs at all.
How to read the answers, not just collect them
A checklist gives you a stack of answers. The judgement is in what you do with them. Two habits help. First, weigh the work to the cheque: a deal you're leading, or a large commitment, earns deeper checks than a small follow-on behind someone whose process you trust. Second, watch for what's missing as much as what's stated - the question deflected, the document not produced, the risk no one wants to name out loud. Pressure to decide before you've seen the basics is itself a finding.
None of this removes the risk. Most early-stage companies fail, and no amount of checking changes that arithmetic. What diligence does is make sure the risk you're taking is one you understand and can afford to lose - and that, on the day it goes wrong, you'll know you went in with your eyes open. Where the stakes warrant it, take that last step with FCA-regulated advice rather than alone.
Frequently asked questions
What does due diligence on an angel investment actually cover?
It clusters into six areas: the team, the market, the product and traction, the financials and runway, the cap table and legals, and the tax position. At the seed stage there is little to audit, so much of the work is judgement about people and market rather than verifying mature numbers. The aim is not certainty but fewer avoidable mistakes - surfacing the obvious problems before the money has gone. This is general information, not financial advice.
How long should an angel spend on due diligence?
At the angel stage it is usually days to a couple of weeks rather than the months a venture fund might spend, partly because the investment window is short and partly because the hard evidence barely exists yet. The right amount is proportionate to your cheque size and your tolerance for loss. A larger commitment or a deal you are leading warrants deeper checks; a small follow-on behind a lead you trust may warrant less. Time pressure is real, but a deadline is not a reason to skip the checks that matter to you.
Should I check whether SEIS or EIS relief is available before investing?
Yes. For UK angels the tax treatment changes the shape of the bet, so it belongs on the checklist. Confirm the company holds HMRC advance assurance, the pre-investment indication that it looks eligible, and that your route into the deal lets relief reach you. SEIS gives 50% income tax relief on up to £200,000 invested per tax year; EIS gives 30% on up to £1,000,000, or £2,000,000 where at least £1,000,000 goes into knowledge-intensive companies. Both need a three-year hold. Final relief depends on the SEIS3 or EIS3 certificate the company issues after the round, and you generally need to be a UK taxpayer to use the reliefs.
What are the biggest red flags in angel due diligence?
A founder who deflects hard questions or controls all the information; a messy cap table, such as a departed founder still holding a large slice or too much equity already given away; unclear ownership of the company's intellectual property; a valuation asserted rather than reasoned; no HMRC advance assurance where SEIS or EIS relief is being implied; and any pressure to commit before you have seen the basic documents. None of these is automatically fatal, but each is a reason to ask more before you decide.
Can due diligence make an angel investment safe?
No. Diligence narrows the unknowns and catches obvious problems, but most early-stage companies still fail and no checklist changes that. The point is to make sure you are taking a risk you understand and can afford to lose, not to remove the risk. Angel investing means putting illiquid money into companies that may not survive. This article is general information, not financial or investment advice; consider taking FCA-regulated advice before you invest.