Charlie Paparelli always presents an interesting program for the monthly Angel Lounge gathering. This is a group of individuals who generally either have made or are planning to make technology angel investments and who are seeking to hone their skills in this art. It is not what I call a “venture séance” where deals are presented to the attendees in hopes of matchmaking entrepreneurs with money. Its mission is to provide education and mutual support for a group that collectively could deploy something in excess of $10M this year.

Today’s topic was investing criteria, with roundtable discussions followed by Charlie himself as the guest speaker. I thought it might be helpful to synthesize what I heard today and add a few thoughts of my own. Recall my recent post on valuation math and Dave’s post on the new Conway/Milner invest-in-everything fund. This post is more on the nitty-gritty of “pulling the trigger” on an angel deal.

The attendees ranged from one gentleman with a very set 15-point checklist to another who said: “I’m loaded from a recent exit. Bring me some deals.” (I paraphrased a bit there, and please don’t ask me his name.) In general, the criteria included such factors as these.

1) As is typical of Atlanta, most start with a primary interest in B2B SaaS businesses. There wasn’t much tweeting at this event.

2) The venture needs to solve a problem for a set of customers who can pay for that solution. “Who can pay” deserves emphasis; many of us have seen companies that are great at solving problems for potential customers that can’t afford to pay for those solutions.

3) Either the market needs to be big enough to allow the company to be successful with a modest share or there must be such a strong first-mover advantage that a smaller market can be completely conquered.

4) Having customers who are actually paying is considered a great proof of concept. We’re not living in an eyeballs town. We want to see “the dogs eat the dog food.”

5) An entrepreneur who has developed a business plan drawing heavily on his or her direct experience is a big plus. Conversely, saying I have a plan to cure diabetes but have never studied medicine would be a non-starter.

6) It goes without saying that basic trust in the management team is a key. Particular focus was given to the necessity of having someone on that team who can actually sell the first customer and many more to follow. That may seem obvious, but it’s a common weakness.

7) Having a team that has demonstrated cash efficiency in getting started and can operate on the proverbial Ramen Noodles compensation levels gives the investor added comfort that money will be using sparingly going forward. That team needs to be “all-in” with every bit of time, money and effort it can muster.

8) The quality of the referral source is important to an angel investor. Being in a deal with trusted co-investors is a great source of comfort and validation.

9) There was a mention of looking for fairly fast exits. (Positive exits as opposed to quick deaths, just to clarify.) We haven’t seen many of those in recent years. But, I think there is a general preference for having a good batting average with singles and doubles as opposed to always swinging for the fences California style. Charlie contrasted the desired investor position of “Last In, First Out” with the pain of a being a FISH (“First In, Still Here’).

Charlie then shared his personal wisdom on how he measures a deal against such criteria. He talked about evaluating people from the “inside out” and economics from the “outside in.” Emotion can provide the impetus for a doing a deal, but there’s always the balancing act of justifying the decision with the facts.

Charlie is the master interviewer of entrepreneurs. He’s looking for the basic virtues of intelligence, being able to carry on an engaging and meaningful conversation, having one’s personal life in order, and being a true “builder” rather than just a wealth-seeker. But, he also used the term “destiny.” He’s looking for someone for whom entrepreneurship fits a life pattern. That doesn’t necessarily mean having a paper route in the snow at age 6, but it does mean having accumulated relevant experiences and domain knowledge and having reached a point where that person is clearly ready and appropriate to fight the tough fights of the chosen entrepreneurial endeavor. The opposite of that would be someone who can’t find a job and decides “What the heck, I’ll just start me up a company of some sort.”

If you are seeking an angel investment from anyone, reflect on whether you would pass muster under the criteria above. Would you fare well in a Charlie interview? That’s the real test.

Thanks again to Charlie Paparelli for his leadership of this group, which is affiliated with Startup Lounge. Allow me also to throw in a plug for David Adams of Adams Capital, who always hosts this lunch and should be your go-to person when you need valuation services.