For early-stage investors, evaluating a startup often means making decisions with limited financial data, uncertain market conditions, and a business model that is still evolving. While market size and product potential remain important, the founder’s ability to understand the business and build something customers genuinely want can offer valuable signals.

For Amit Singal, Managing Partner at Indicorn Angels, early-stage investing is closely tied to founder conviction, customer behaviour, financial discipline, and the potential of a business to grow over time.

His journey into startup investing began with a background in chartered accountancy. After practising as a CA until 2015, he started Startup Buddy, a company providing virtual CFO services to startups. This experience introduced him to the startup ecosystem and eventually led him to invest in Burger Singh, where he began learning how to identify early-stage businesses and support them as they grew.

His financial background continues to influence his investment decisions, particularly when assessing a company’s numbers and determining whether the opportunity justifies the capital being invested.

Founder Conviction Comes Before the Idea

When evaluating an early-stage startup, Amit places considerable emphasis on understanding the founder. Rather than looking only at the size of the market or how attractive an idea appears, he spends time with founders to understand their passion, vision, knowledge, and conviction.

For him, product-market fit is important, but the founder’s understanding of the business is equally critical. Investors need to assess why a founder is the right person to build a particular company and whether they have the knowledge and commitment required to execute the idea.

Due diligence remains an essential part of the process, particularly when verifying financial and legal information and checking whether the founder’s claims match the company’s books of accounts. However, Amit believes that early-stage investment decisions are often driven by the founder before the idea itself.

He also looks for relevant experience and evidence that the founder has researched the market thoroughly. Founders who replicate business models from other countries without understanding the underlying market or how the business works raise concerns.

A founder’s knowledge of the problem, familiarity with the target market, and ability to explain the opportunity clearly can encourage further discussions. When these elements are missing, it becomes difficult to build confidence in the business.

Customer Behaviour Is a Stronger Signal Than Acquisition Alone

Early-stage startups often have limited financial data, making it difficult for investors to rely on conventional financial metrics. In such situations, Amit looks closely at customer feedback, purchasing patterns, and repeat orders.

A product may attract customers through marketing expenditure, but retaining those customers is a different challenge. Repeat purchases can indicate that consumers find genuine value in the offering and that the business is addressing a real market need.

Amit also examines customer personas and cohort analysis to understand how customers behave over time. These insights help investors distinguish between growth driven primarily by performance marketing and growth supported by sustained demand.

For him, customer acquisition alone cannot establish whether a business has long-term potential. If customers return to buy the same product repeatedly, it provides greater confidence that the offering is meeting their needs.

He also connects customer retention with brand building. A business that develops a loyal customer base has a stronger foundation for long-term growth, while a company that depends heavily on continuous spending to acquire new customers may find it difficult to sustain momentum.

Valuing Early-Stage Startups Requires a Long-Term View

Valuation becomes particularly challenging in the early stages of a startup’s journey. Unlike more mature companies, young businesses may not have sufficient revenue, EBITDA, or other financial metrics to support conventional valuation methods.

As Amit explains, early-stage investors are often investing in the founder’s vision and the company’s future potential rather than an established financial track record.

His approach is to assess how the business could develop over the next three to four years and whether the capital being raised can help it grow to a level that justifies the investment. He considers whether the company can use the money efficiently and whether the potential returns align with the risk involved.

If the opportunity does not meet his return expectations at the proposed valuation, he looks to negotiate a more reasonable entry point.

While future projections play a role in this process, Amit does not rely on discounted cash flow (DCF) as a formula for valuing early-stage companies. Instead, he uses his own assessment of the business, its growth potential, and the likely impact of the capital being invested.

The central question is whether the company can grow meaningfully with the funds it raises and generate returns that justify the investment.

Corporate Governance Can Make or Break an Investment

A promising business idea is not enough if the company lacks financial discipline and proper compliance practices.

During due diligence, Amit looks for red flags such as inaccurate sales reporting, delayed tax payments, non-compliance with labour laws, missing agreements, and inadequate financial reporting.

He also highlights the importance of regular monthly financial closures and maintaining clear records. These practices help investors understand the actual state of a business and assess whether it is being managed professionally.

For Amit, corporate governance is a fundamental requirement rather than a formality. If the company’s financial information cannot be verified or its compliance practices raise serious concerns, the investment may not proceed.

Even when a startup appears attractive on the surface, gaps in reporting and governance can undermine investor confidence. Transparent records and professional business practices are therefore important to building a company that can attract further capital as it grows.

Follow-on Investments: Backing Winners and Supporting Growth

When deciding whether to invest additional capital in an existing portfolio company, Indicorn Angels follows a relatively straightforward approach. Amit says the firm generally participates in follow-on rounds when an external investor is also investing in the company.

This approach allows the firm to back companies that continue to attract outside investment, rather than repeatedly reassessing the valuation of its own portfolio companies without an external reference point.

However, supporting a startup’s growth does not always mean providing more equity. Amit says the firm also works with portfolio companies to explore other funding options, including bank loans, depending on their requirements and circumstances.

The focus is on helping businesses identify suitable ways to finance their next stage of growth. For an investor, this also means understanding how much capital the company needs and whether equity is necessarily the most appropriate route.

AI Is Becoming Essential, but Identifying Genuine Innovation Remains Difficult

Amit views artificial intelligence as a tool that businesses will increasingly need to adopt. Comparing its evolution with the shift from typewriters to computers, he believes AI will become a routine part of how people work and how companies operate.

This outlook has made AI-led businesses an area of interest for Indicorn Angels. The firm is positive about the opportunities emerging in the space and continues to evaluate startups working with AI.

However, identifying businesses with meaningful AI capabilities is not straightforward. As the term becomes more widely used, companies may describe themselves as AI-led without having substantial underlying technology or intellectual property.

Amit distinguishes between evaluating an AI business and simply accepting its positioning at face value. Investors need to understand what the technology actually does, what intellectual property the company possesses, and whether AI plays a meaningful role in its offering.

He is not dismissive of AI wrappers, but believes investors must understand what lies behind the product. With many businesses adopting AI as part of their messaging, determining which startups have a genuine technological advantage remains a challenge.

For investors, the opportunity is significant, but so is the need for careful evaluation.

Where Amit Sees Opportunities for Early-Stage Investors

Looking at the next three to five years, Amit identifies AI and deep tech as important areas for early-stage investors to watch.

He sees deep tech gaining attention as the Indian government focuses on the sector and venture capital funds increase their investments in businesses developing advanced technologies.

Within deep tech, he particularly highlights health tech and defence tech.

Health tech presents opportunities because several problems in healthcare still need effective solutions, creating room for startups to develop products and services that address existing gaps.

Defence tech is another area he finds promising, particularly in the context of the current geopolitical environment and the need for new solutions. Startups working in these areas could find opportunities to address emerging requirements.

For investors, these sectors offer potential, but identifying the right businesses will still require an understanding of the founders, the underlying technology, the market need, and the company’s ability to execute.

Building Investment Decisions Around Evidence

Amit’s approach to early-stage investing brings together financial analysis and an assessment of the people building the business. A founder’s conviction may initiate an investment conversation, but customer behaviour, repeat purchases, financial transparency, and disciplined execution help determine whether the opportunity merits further consideration.

In a market where startups can attract attention through ambitious projections and emerging technology trends, his emphasis remains on understanding what is happening inside the business. Is the product solving a real problem? Are customers returning? Does the founder understand the market? Are the company’s financial and compliance practices in order?

For early-stage investors, these questions provide a practical framework for looking beyond the pitch and assessing whether a startup has the foundations to build a sustainable business.

-By: Aakriti Jaiswal