I had a recent conversation with another fund manager about how we evaluate potential investments and ended up sharing the questions from a survey we send to companies once we start a formal due diligence process.

There is another much more mundane detailed checklist related to legal documents that I will spare everyone but did want to share publicly the kinds of things we want to understand and how we ask them.

So much of pre-seed and seed stage investing is about the people vs. the product so we try to drill in on what makes the founding team want to do this and what they view as success. We even specifically ask what would make them quit which is often the first time a founding team will have an open discussion about this.

The survey results are used for a couple hour session with the founders once it is filled out and then feeds into our investment memo process as we evaluate a potential investment. Thought it would be a good thing to share publicly as much of this is to be expected although it does have our own spin on it. Enjoy!

1. PROBLEM: Please describe the company’s value proposition. What problem do you solve and why is there a compelling reason to buy now.
2. SOLUTION: Please describe the solution. What is it? How is it differentiated from other current offerings or approaches? What is the competitive advantage? Compelling ROI?
3. MARKET: Please define the target market, size of addressable market and reference any associated 3rd party market studies or analysis. Please describe how you will reach this market (sales and marketing tactics) as well as any details on market adoption rates, stage/pace of adoption, etc.
4. TRACTION: Please describe current number of customers, average customer contract/ deal size, and any other associated unit economics. Please provide any relevant year over year, quarter over quarter revenue and/or usage rates. Please provide a 3-5 year forecast of customer acquisition including costs, timing, and profitability. Please provide customer references if possible
5. COMPETITION: Please describe your top 3-5 competitors (including alternatives or doing nothing), how you differentiate, and why you are a more compelling solution. How do the larger companies in the space (who may be partners) view this opportunity and why are they not going after it?
6. FINANCIAL: Please provide most recent financial statements including any comparisons to prior years/quarters as applicable. What is your cash burn rate? What is your current cash balance? What are the largest sources of cash burn and how are you managing them? Based on the capital you are raising, how much runway does this provide? What does the company look like from a cost structure standpoint at $1M in revenue, at $5M? What are the current and expected margins as the company scales? What are the exit scenarios at $50M and $500M exit values? How much capital and time to achieve both of the previous scenarios including key assumptions?
7. TEAM: Explain why you are dedicating your time to solve the problem? Please provide details on yourself, executives and any key employees with specific relevance to this industry, problem, and/or need. Why would you quit and do something else? What will success look like?
8. FUNDING AND OWNERSHIP: How much money has been raised thus far? When and at what terms? Who are the other current investors (if any)? Who else is committed to this round? Please provide most recent capitalization table. All founders/key employees on vesting schedules? All founders/key employees still working on the business full time?
9. IDEAL INVESTOR PROFILE: Please describe your ideal investor. This includes subject matter expertise, level of engagement, specific needs, etc. Many investors in our fund are interested in being of assistance beyond our team and we would like to know the best way to help you.
10. QUESTIONS FOR US: Any open questions? Anything you would like to know about us?

Cross posted on Linkedin