Lesson 8 of 8 · About 5 min read · By Lane Kawaoka, PE · Updated November 2026 · Course home

How to Vet a Pre-IPO or Angel Deal

Your question: “How do I separate a good deal from a good pitch?”

A good pitch is easy to find. A good deal is a company worth owning, at a fair price, through a clean structure, with a believable way to get your money back. This lesson pulls the earlier lessons into questions and a checklist you can use on any pre-IPO or angel opportunity.

The Six Questions for Any Pre-IPO Deal

1. What do I own? Direct company shares, an SPV interest, a fund interest or exposure through some other vehicle?
2. What’s my entry price? At what implied valuation am I investing, and how does it compare with recent funding rounds?
3. What share class and rights? Common or preferred, how much liquidation preference sits ahead of me, and what voting and information rights do I get?
4. What are the fees? Every layer: upfront, management, carry and other costs, in dollars.
5. What are my liquidity and transfer rights? Can I ever sell before an exit, and does the company have to approve it?
6. What’s the path to liquidity? IPO, acquisition, tender offer or secondary sale, and what evidence is there that any of them will happen?

If you can’t answer all six in writing, you’re not done.

Questions to Ask the Sponsor or Founder

For a pre-IPO vehicle, the sponsor is the person you’re trusting most. For an angel deal, it’s the founder.

• How did you get this allocation, and what is your relationship with the company or the seller?
• How much of your own money is in this vehicle, on the same terms as mine?
• What did you look at in diligence, and what couldn’t you verify?
• What information will I receive, how often, and how will I hear about a funding round, tender offer or exit?
• What happens to my investment if you or your firm stop operating?
• For founders: what has to be true in the next 18 months for this to work, and what will you do if it isn’t?
• For founders: how are salespeople and key hires paid? In early companies, heavy fixed salaries before revenue is proven can burn cash fast. Pay tied to closed business shows cash discipline.

Questions to Ask About the Market

• Who is buying this product today, and why would they keep buying it?
• Who are the main competitors, including large companies that could build the same thing?
• What regulations or government decisions could help or hurt this company?
• How big is the realistic market, as opposed to the one in the pitch deck?
• What would make this company less relevant in five years?

Questions to Ask About the Cap Table and Valuation

• What did each funding round raise, at what valuation, and with what liquidation preferences?
• How much total preference sits ahead of the class I’m buying?
• How many more rounds does the company likely need before an exit, and how much dilution does that imply?
• What exit value does the company need for me to get back my money after fees? Twice my money?
• Does the investment structure fit where the company is in its life? A royalty can fit a steady revenue business and be a poor fit for a company whose whole story is a big breakout.

Scenario-Test the Documents Before You Invest

The headline terms rarely tell the whole story. Before funding, run the governing documents through several outcomes: the company raises a priced round in 18 months, never raises, sells early, stalls for six years with no exit, or fails. For each one, find in the documents what you’d receive and when. The documents control, not the marketing summary or a verbal explanation.

The terms that usually matter more than any headline rate:

• Valuation cap and discount
• Qualified financing threshold (a high threshold can make conversion terms mostly theoretical)
• What happens in a sale before conversion
• Seniority, and whether the instrument is secured or unsecured
• Maturity and what happens if it passes
• Information and voting rights
• Transfer restrictions and the manager’s discretion at exit

Want to run the documents through an AI tool? Use the prompts in the AI Due Diligence Dossier.

Better Deal Structure Can Come From Less Crowded Deals

Deal quality and deal structure aren’t the same thing. A crowded deal with a popular founder or a hot sector can attract plenty of money and offer weak terms to investors. A less crowded deal may give room to negotiate a structure that better matches the risk. The point isn’t to chase unpopular deals. Returns come from both what you buy and the terms you buy it on.

Pre-Wire Checklist

Before Reviewing a Deal

• I’ve decided how much of my portfolio this sleeve is, and this deal fits inside it.
• I’ve checked my existing tech concentration.
• I know whether this is a later-stage pre-IPO deal or an early-stage angel deal.
• I can afford to lose the whole amount and leave it untouched for many years.

Before Talking to the Sponsor or Founder

• I’ve read the offering documents, not just the deck.
• I’ve written down the six questions and what I don’t yet know.
• I’ve counted the layers between me and the company.
• I’ve compared the entry price with the last priced round.
• I’ve noted every fee I can find, in dollars.

Before Wiring Funds

• I’ve seen proof that the vehicle owns, or will own, the shares.
• I know which share class I’m getting and what preference sits ahead of it.
• I’ve scenario-tested the documents for success, a stall and failure.
• I know what information I’ll receive and how often.
• My CPA has reviewed the structure, K-1 expectations and any QSBS claim.
• I’ve confirmed wiring instructions by phone with a known contact, never from an emailed instruction alone.
• I can explain in my own words why I’m investing and when I would have passed.

You’ve Finished the Course

You now know more about what sits behind a pre-IPO or angel pitch than most people who write these checks. You know to ask what you own, what it costs, how you’d ever get paid and what happens if it doesn’t work. Losing money is still possible in this asset class, and nothing in this course changes that. What changes is that you’ll know what you’re taking on.

When you want to see how our community approaches private company investing, book an onboarding call with our team and join the club. The link is below.

Watch: Two Conversations on This Topic

If you would rather listen than read, these episodes cover much of this lesson. Use the timestamps to jump to the parts that matter most.

Act as a skeptical investor reviewing this pre-IPO or angel deal summary: [paste]. Run it through three passes: does it fit my sleeve size of [amount], are the vehicle, fees and price clear, and what do I know about the company and the people running the deal. List red flags and the questions I should ask before wiring money. Use the lessons at thewealthelevator.com/home/resources/angel/ as background. Do not recommend a specific investment, and list what I should confirm with my CPA.

The podcast behind this course

Listen to the Angel Investing podcast

Many people who find this course don’t realize there’s a whole podcast on this topic. Each month I walk through angel and pre-IPO deal terms, due diligence questions and lessons from real conversations with investors.

Listen on Apple PodcastsWatch on YouTube