When evaluating any investment there are many things to look for, but I can divide them into the following categories:
The first thing I do is to look at the founders and be convinced that they have what it takes to be successful entrepreneurs and build a business. People are the most important thing in a startup so people and talent always comes first when deciding -especially for early-stage investments, which is what I do- because the team is typically very small.
Alongside talent, experience is the other important thing. Most successful entrepreneurs (against popular belief) are experienced, middle aged people that have done it before and know how to do it. They know the market, how to make products, how to sell them, how to raise money, etc. Very rarely [do] I invest in people without experience, and when I have done it most of the time it has not worked great.
The entrepreneurs need to have an idea for a market that is sufficiently attractive for an investor to make a return. Too small or too niche or local products -or products that are really just like features of existing products- do not interest me. I need to be convinced that they are proposing to solve a problem that someone today has, that is not being addressed by current products or services, and that it is important enough that people will adopt their product to solve that problem.
4. Valuation And Round Size.
The other thing I look at is where the company is, and what they are asking for both in terms of total money to raise and valuation? I am an angel investor so I mostly do only very early stage.
5. Who Are The Other Investors?
This shows the ability of the entrepreneurs to attract smart money which is particularly important at the beginning; their criteria when choosing partners, and how much they value to be around good people. It also helps me validate my thinking about the company, discussing it with other investors I trust and value.