Purpose of this article

• Outline questions to ask as you’re considering whether or not to invest in a private company. The questions are focused on a long-term established company.  The company would not be a candidate for early stage or venture capital investing.
• This article asks questions which may not be part of a standard financial, legal, and human resources due diligence.
• This article does not cover all of the required due diligence tasks, which include financial analysis, legal reviews, intellectual property reviews, etc.

There are 10 sets of questions to consider:

• Question #1 focuses on the company’s potential market size and understanding of it’s customers.
• Question #2 focuses on the potential to grow the value of the company.
• Questions #3-#10 focus on your relationship with the company and how you’ll get value from your investment.

You may download a PDF of this article from: How do you invest in a private company V2

#1 What is the current and future market place demand for the company’s solution?

Who are the target customers and users? What is their value proposition? Value proposition is the customers and users perception of value.  What are all the financial and non-financial benefits achieved? e.g. time savings, convenience, status, reducing negative emotions or risks, benefits achieved (financial and non-financial) achieved by the customers?  What are all the costs incurred by the customer (purchase costs, costs to switch to your company, other adoption costs, ongoing costs)?

Market Size Metrics

Market size = (The number people (or organizations) with an urgent problem or need that they are willing to spend money) times (the amount they are both willing and able to spend).

What is TAM (Total Addressable Market)?

• What would be the company’s revenue if 100% of the customers demanding a solution to their problem bought the company’s solution. This assumes all potential geographies, distribution channels and partners.  The number of customers demanding a solution will be fewer than the number of customers that have the problem or need.
• The best way to calculate TAM is with a bottom up calculation, starting with a clear description of the target customer segments, their problems and needs, and then considering the subset of customers who will actually provide revenue, and the revenue per customer. Recognize not everyone in every country will be able to afford the solution.

What is SAM (Serviceable Addressable Market)?

• This is the portion of the TAM that is within the reach of the company’s current geographies, distribution channels, and partners, and the company’s ability to deliver and support their solution. This still assumes 100% market share of those customers demanding a solution.

 What is SOM (Serviceable Obtainable Market or Share of Market)?

• SOM will be lower than SAM for three reasons: there will be competitors, customers who are demanding a solution may not actually buy a solution, and there will be an adoption rate ranging from early innovators to laggards.

Customer Metrics

New customer value achievement leading indicator (e.g. for Slack it was 2,000 team messages sent within 60 days).

New customer success metric (e.g. % of new customers achieving new customer value achievement indicator within 60-90 days).

NPS (Net Promoter Score) The single most important question is asking  “Would you recommend our solution to others?”  (Follow on questions could be “If so, why?  If not, why not?”) This metric is known as NPS.  What is your NPS? Above 0 is good. Above 50 is excellent. Above 70 is world class. How do you compare to your industry and competitors? What has been your NPS trend?

The Net Promoter Score concept was initially developed by Bain.  The following is a link to the Bain website homepage for Net Promoter Score, which contains several short articles:

http://www.netpromotersystem.com/about/why-net-promoter.aspx

The following is a quick overview of using Net Promoter Scores:

https://www.forbes.com/sites/shephyken/2016/12/03/how-effective-is-net-promoter-score-nps/#1b1391b423e4

What have been the findings and trends from ongoing customer interviews and surveys?

What are the scenarios for future market size?

What will be the impact on customer problems and needs due to potential startups, actions of current competitors, and established companies entering the market place either organically or by acquisitions? Remember what happened to Blackberry.  The customers no longer had problems and needs which the keyboard-based Blackberry could solve.

#2 What will drive the value growth of the company?

There are four ways to grow the value of the company:

• Remain focused on the problems and needs of current customers, but increase the number of customers by expanding geographies, channels, and partners.
• Target new customers, with different problems and needs which the current capabilities of the company can solve by creating new solutions.
• Eliminate unprofitable customers, customer segments, geographies, channels, and partners.
• Improve the internal operations of the company: develop current talent, acquire new talent, eliminate inappropriate talent, improve or change the processes, improve or change the technology. Talent includes: the board of directors, CEO, C-Suite, employees, advisors, consultants, contractors, and outsourcers.

The above four value growth opportunities could be addressed organically, by acquisitions or divestitures.

How are you going to help drive the value growth of the company, in addition in addition to your capital?

• Using your network to help obtain customers, employees, and other investors?
• Using your knowledge, skills, and experience to serve on the board of directors or advisory board?
• Coaching and mentoring the CEO or C-Suite?

#3 Who will buy the company or your shares in the future?

• A strategic buyer?
• A financial buyer?
• An owner/operator?
• Employees?
• IPO?

#4 Why will they buy it?

• Growth potential?
• Operational improvement potential?
• Access to company’s customers, distribution channels, and partner?
• Access to company’s talent and intellectual property?
• Leading and defensible market position?
• Non-concentrated channels and partners?
• Sustainable margins?
• Proven management team with successors?

#5 What will they pay for it?

• Multiple of EBITDA or free cash flow?
• Terms and conditions?

#6 What is the exit plan?

• You or major shareholder(s) die?
• One shareholder wants to exit?
• Your plan to exit in Y years? If so, how?

#7 How will you and other shareholders take value out of the company?

• Final sale of the company?
• Interim financing enabling your partial or total exit?
• Dividends?
• Products or services?

#8 How will decisions be made?

• What decision will be reserved for shareholders and what is the decision process?
• What % of equity and what % of shareholders will be required for decisions?
• What veto power will individual shareholders have?
• Does the CEO have any veto power?
• What decisions, if any, will be made by the board of directors?
• What is the delegation of authority to the CEO?

#9 What is your fit with the other shareholders and management team?

• Do you have a common set of values, morals, and ethics?
• Can you work together?

#10 What will be in the shareholder’s agreement?

• What the shareholder objectives are?
• The answers to questions #6, #7, and #8.

Your next steps

• Define your investment decision-making criteria and process. This includes: the financial aspects of your overall long-term financial plan, and your long-term life plan.
• Which criteria are deal-killers?
• Define the overall due diligence process – structured data collection and data analysis.
• Execute your structured data collection, data analysis, and decision-making process.

Recognize that emotions and gut-feelings will still play a key part in your final decision.

Further reading

• How can a private company sell securities in Ontario?

https://koorandassociates.org/selling-a-company-or-raising-capital/how-can-a-private-company-sell-securities-in-ontario/

 

Purpose:

This article has a two-fold purpose

• Encourage startup founders to research the deal-killer evaluation criteria used by investors to quickly determine whether to devote further time to learn about a startup. Given the massive number of startups looking for funding, time constraints force investors to be able to say “no” as quickly as possible.
• Encourage board of directors and CEOs of established companies to also develop their own deal-killer criteria as a filter for the many proposals and recommendations made to them.

This article:

• Reflects my personal point of view. Investors, board of directors, and CEOs will have their own deal-killer criteria.
• Is not intended to score a pitch or enable a relative ranking of pitches.

You may download a PDF of this article from: Pitch evaluation – what are deal killers

My deal-killer criteria are based on 3^rd party research regarding the 3 greatest contributors to startup failure?¹

This research study analyzed 101 startup failures and identified the most frequently cited reasons for failure.  Usually there were several reasons for failure.

• 42% of the time built a solution looking for a problem i.e. no market need.
• 29% of the time running out of cash.
• 23% of the time, not the right team.

Deal-killer criterion #1 What is the size of the market need?

How many customers believe they have an urgent enough problem or need that they

• Are willing to spend money to address;
• Have the money to address;
• Have put a value, including what would pay, on addressing the problem or need.

Has the pitch described the customers’ value-proposition?

This is the customers perception of value.  What are all the financial and non-financial benefits achieved? e.g. time savings, convenience, status, reducing negative emotions or risks, benefits achieved (financial and non-financial) achieved by the customers?  What are all the financial costs incurred by the customer (purchase costs, costs to switch to your company, other adoption costs, ongoing costs and non-financial costs (e.g. time, social status, existing relationships, etc.)

To understand the customers perception of value requires direct input from potential customers, by a combination of interviews and surveys.  Most of the pitch I hear reflect the either the founders opinions/hopes of the startup or a one-page slide showing market size in the $10s of billions, based on a consulting/research study.  These startups are taking the ”build it and they will come approach” of first creating the solution and then hoping that there are customers.

What is TAM (Total Addressable Market)?

• What would be the startup’s revenues with their future solution if 100% of the global customers demanding a solution to their problem bought the startup’s solution? TAM is the case with no competitors.
• The solution built in the first 12 months is only a subset of the solution which in 5 years time will address TAM i.e. TAM depends upon the specific nature of the solution at a point in time. Note the phrase “demanding a solution”. You must not include in TAM ghost customers who are not demanding a solution.  If customers don’t know they have a problem and are not demanding a solution, the startup is planning to fail.
• There is a critical difference between customer needs and customer demands. Customers have a large number of needs.  Demand is customers deciding that they will spend time, effort, and money to get a solution for what they believe is an urgent need.  Often this means that customers will spend less money to meet other needs.
• Is the startup’s TAM large enough to launch and grow the company? For example, the global smart phone TAM is huge, but the global TAM for smart phones that have a keyboard is tiny.
• The best way to calculate TAM is with a bottom up calculation, starting with a clear description of the target customer segment, its needs, and then considering the subset of customers who will actually provide revenue, and the revenue per customer. Recognize not everyone in every country will be able to afford the solution.

What is SAM (Serviceable Addressable Market)?

• This is the portion of the TAM that is within the reach the startup’s distribution channels and partners, and your ability to deliver and support your solution. Geography may be a constraint. This still assumes 100% market share of those customers demanding a solution. SAM will change over time, as growth occurs in geography, the number of distribution channels and partners, and the volumes from each distribution channel and partner.
• How will customers connect with the startup?  If they are seeking a solution, how will they find the startup?  How will the startup make customers aware of the solution?

What is SOM (Serviceable Attainable Market or Share of Market)?

SOM will be lower than SAM for two reasons: the startup may have competitors, and every customer who is demanding a solution may not actually buy a solution.

Deal-killer criterion #2 When will the startup run out of cash?

This is rarely presented in the pitch. If there is time, follow-on questions can provide insight:

• How many months out does the monthly cash flow forecast go (many startups lack this)?
• Given current customer income and costs plus existing cash in the bank, how many months until cash is gone?
• Assuming that there are three future forecasts, how many months until the cash is gone in the most conservative forecast?
• How many weeks have they assumed that it will take to close the current financing round?
• How many weeks have they assumed from the end of the current financing round until the next financing round?
• The average seed stage round takes 12 ½ weeks. 20% of the startup require 20 weeks or longer. 20% of the startups require 6 weeks or less.²
• A fund-raising round can take a long time. This research study examined 13,916 financing events.³ The average time between fundraising rounds was 20.6 months. The time between rounds ranged from 6 months, to 35 months, 68% of the time.  e. 16% of the time less than 6 months and 16% of the time longer than 35 months
• The above fact-based research was done prior to COVID-19.

Deal-killer criterion #3 Does the team have relevant experience?

• Assess the skills and experience requirements implied by: the target customers, the value proposition, the nature of the solution to be built, the needed partners and suppliers, etc. Have the founders demonstrated that the team (which includes investors and advisors) has the relevant experience, skills, and network.
• Most founding teams have gaps. Have the founders identified the gaps and milestones to close the gaps.

How do I use the deal-killer criteria?

I focus on whether the founders are doing the right thing, that they have the right approach and mindset.  I don’t expect the perfect research and perfect analysis.

Deal-killer criterion #1 What is the size of the market need?

• If the founders do not believe they need direct input from customers, the deal is dead. Most of the startups I meet fall into this category.
• If the founders market size slide shows a massive number and at the same time does not reflect understanding of TAM, SAM, and SOM the deal is dead.  I cannot tell from a pitch if the founders don’t understand the concept or are being deliberately deceitful. Unfortunately, many founders are not coachable on these concepts.  I’ve also met deceitful founders.

Deal-killer criterion #2 When will the startup run out of cash?

Founders rarely give enough information in a pitch to assess this. There’s rarely enough time in a pitch Q&A session to ask the detailed questions regarding cash flow. The questions can be a follow-up action for the founders after the presentation. This is a deal-deal killer if:

• The monthly cash flow forecast does not exist.
• The founders have an extremely optimistic view of how quickly funds can be raised.
• The founders are already almost out of cash.

Deal-killer criterion #3 Does the team have relevant talent and experience?

• I don’t expect the team have had a long history of experience in the target marketplace, target technology, etc. Historical knowledge often becomes obsolete.  What’s key is current knowledge and the mindset to keep that knowledge up-to-date.
• I expect that the team has learned about the customers, the customer perception of value, competitors, partners, technology etc.
• The team includes: founders and key leaders, advisors, board directors, and major investors.

Your next steps

• Define you own deal-killer criteria.
• Define in detail the criteria and process for evaluating the team’s relevant talent and experience.
• Pitches for major change to an established company (e.g. transformation) will require a third party to assess the board of directors and key advisors and consultants for their relevant talent, skills, experience, and personal networks.

Footnotes

¹ https://s3-us-west-2.amazonaws.com/cbi-content/research-reports/The-20-Reasons-Startups-Fail.pdf

²“What we learned from 200 startups who raised $360 million”, Professor Tom Eisenmann, Harvard Business School, and DocSend

https://www.slideshare.net/DocSend/docsend-fundraising-research-49480890

³ https://medium.com/journal-of-empirical-entrepreneurship/how-much-runway-should-you-target-between-financing-rounds-478b1616cfb5

This article has a two-fold purpose:

• For startups at the pre-Series A stage, outline the different kinds of startup pitches.
• For established companies, outline different ways to describe their companies, business units, and major projects.

You may download a PDF of this article from: What are the different kinds of startup pitches V2

The purpose of the pitch is to convince investors when you first meet them that they must learn more about you, and your company.  Investors are swamped with pitches every day; therefore, most investors seek to be able to say “No” as quickly as possible to minimize their time.

Many investors and funds have deal killer criteria.  These are the few criteria, which if you don’t address in your pitch, result in the investor immediately saying “”No”.

Investors will not write a cheque based just on the pitch.  Investors wanting to learn more about you results in further presentations, meetings, and due diligence.

There are two types of pitch decks:

• The in-person deck. This deck supports the someone doing a presentation.  The bulk of the information is communicated orally. The deck is very visual with a limited number of words and numbers.
• The standalone pitch deck. This is designed to be read without someone speaking. This deck contains the all the key talking points, words, and numbers.  This deck is often left behind after a presentation and often emailed to potential investors.

There is a difference between a pitch (which is what the founder says) and the pitch deck (which are the slides).

The objectives of the pitch are:

• Convince investors why the company must exist.
• Be memorable – the investor must remember you the next day. Otherwise you won’t be called back.
• Be professional – look and speak as if you already are the CEO of a successful company. This includes your body language, how you stand, and how you speak.
• Create a trust, confidence, and emotional connection between the investor(s) and presenters.
• Create the excitement and interest in the investors to learn more, while demonstrating your oral presentation skills and ability to have a Q&A dialogue.
• Be able to communicate with an audience that has no previous information about you. Assume that the investors are not experts regarding your customers, your industry, or your technology.

You need to answer seven common key investor questions:

• What do you do?
• How big is the market?
• What is your progress?
• What is your unique insight?
• What’s your business model?
• Who is on your team?
• What do you want?

More detailed information regarding these 7 questions is available at;

https://blog.ycombinator.com/how-to-pitch-your-company/

Your approach during your presentation should be:

• Engage the investors emotionally with the story about the startup.
• Make a great first impression. The first few seconds can make or break you.

The one sentence pitch

“My company (company name) Is developing (a defined offering) to help (a target audience) (solve a problem) (with secret sauce).”

The one sentence pitch is further described in this link to the Founder Institute:

https://fi.co/madlibs

The 2 sentence Email Test

The Email Test. Write up a two-sentence explanation of what your startup does then email it to a smart friend. Ask them to explain it back to you in different words. If they ask any clarifying questions, you need to revise your pitch. It’s important to revise your two-sentence pitch because you can’t add explanations as you would in conversation.

Further information is available at:

 Your one-minute pitch

When you have only 60 seconds to make your pitch, the critical elements are:

• Who are you? < 5 seconds. One sentence.
• What’s the customer problem? < 20 seconds. 3-5 sentences.
• What’s your solution? < 25 seconds. 2-3 sentences
• What’s your ask? < 5 seconds. One sentence.
• What’s the one sentence everyone in the audience needs to remember? < 5 seconds/

What can we learn from a study of 200 pitch decks that were successful in fundraising?¹

How long does an investor spend to look at a pitch deck emailed to them? 3 minutes 44 seconds

How many seconds does an investor spend on each part of the pitch deck emailed to them?

• Financials……..……23.2
• Team……….……….22.8
• Competition………..16.6
• Why now?…………….16.3
• Company purpose…15.3
• Business model…….14.9
• Product…………..….13.9
• Market size………….13.3
• Problem………….….11.3
• Solution………………10.6

 What was the average structure of the pitch deck, what % of startups had the section, and what was the average number of slides in each section?

• Company purpose…73% 1.8 slides
• Problem…………….88% 2.0 slides
• Solution…………….69% 1.2 slides
• Why now……………46% 1.7 slides
• Market size…………73% 1.4 slides
• Product………….….96% 5.0 slides
• Team …………..…100% 1.2 slides
• Business model……81% 3.4 slides
• Competition………..65% 1.4 slides
• Financials…………..58% 2.3 slides

 What are investor expectations for your pitch?

• Do your research to find out what investor expectations are for your pitch.
• Many investment funds and angel groups publish their expectations on their website. Ask other startups who have presented to the investors.
• Prior to your pitch to investors, ask them what are critical items they want to understand and hear. Validate these by repeating them at the beginning of yoru presentation.  Success is harder if all you do is give the identical pitch to every single investor and haven’t spent time to learn about them.

The following are some examples of investor expectations:

Maple Leaf Angels (Toronto)

The following is a link to their pitch deck template on their website.  They also publish their criteria for evaluating pitches and their data room expectations.

https://mapleleafangels.com/wp-content/uploads/2020/07/Elevate-Your-Pitch-Template-Deck.pdf

The following are links to what three organizations have defined as their pitch deck expectations

• MaRS Discovery District in Toronto

https://www.marsdd.com/mars-library/how-to-create-a-pitch-deck-for-investors/

• Sequoia

https://www.sequoiacap.com/article/writing-a-business-plan/

• Y Combinator

https://www.ycombinator.com/library/2u-how-to-build-your-seed-round-pitch-deck

 Your next steps

• Create the different kindsof startup pitches.
• Before you present, research you target audience to understand their expectations.
• Change your oral and written presentation to meet the critical requirements of your target audience.

 Footnotes:

¹ “What we learned from 200 startups who raised $360 million”, Professor Tom Eisenmann, Harvard Business School, and DocSend

https://www.slideshare.net/DocSend/docsend-fundraising-research-49480890

Further reading

• Excellent insights into creating and giving your pitch

https://medium.com/crane-taking-flight/fundraising-why-you-shouldnt-just-copy-sequoia-s-pitch-deck-template-4b32ac60d93a?

• What is “Company purpose”

https://medium.com/@iskender/the-perfect-pitch-deck-designed-by-a-vc-902842ce7f38

 

The purpose of this article.

The two-fold purpose of this article is to:

• Provide an investment memo template for a startup investor, investment fund, or angel group.
• Enable early stage startups to understand how they will be assessed.

This article is linked to “Due diligence questions for an early stage startup”¹

You may download a PDF of this article from: Startup investment memo

There are three phases to an early stage startup.

Startup

• A startup is a temporary organization designed to search out a repeatable and scalable business model. Lots of learning experiments are carried out. The focus is on getting some delighted cash paying customers.
• A business model describes how a company creates value for itself while delivering products or services to customers. What are you building and for whom? What urgent problems and needs are you solving?

 Preparing to scale

The startup believes it has a business model which can meet the needs of a large number of cash paying customers. The focus shifts to putting in place cost-efficient and easily scalable technology, processes, and talent.

Scaling

The focus shifts to growing the:

• geographies
• marketing, sales, delivery resources and activities.
• channels and distribution partners.
• Customer segments.

The purpose of the Investment Memo .

Recommend whether or not the investment is appropriate to proceed to the term sheet stage. The Investment Memo is based on:

• The answers from the early stage company to the due diligence questions.
• Additional facts gathered from third party questions.
• Analysis of the collected facts.
• Investor judgement, based on a variety of criteria.

In an early stage fund, the investment memo is presented to the partners to explain why the investment should be made, or not made.

The investor will have used simple criteria to quickly filter out early stage companies before devoting time in due diligence E.g.

• After spending less than 5 minutes reading an emailed application.
• After a 15-minute phone call or meeting.
• After listening to a pitch at an event.

A deal-killer recommendation.

Each investment fund will have some deal-killer criteria. If the startup-meets any one of these criteria, there is no deal.  The deal-killer criteria vary by fund.  E.g. market size is too small, founders are not trust-worthy, no potential customer interviews or surveys, etc. Deal-killer criteria could include not answering, or unable to answer, critical due diligence questions.

In this situation, the investment memo only one-page long.

Investment Memo with no deal killers – the process.

 The detailed structure of the Investment Memo follows the structure of the due diligence questions for the startup.

For each question, indicate whether the questions were answered, whether or not there are any issues, and what validation was done.  Validation can include: talking with 3^rd party experts, doing independent primary and secondary research, preparing analysis separate from that submited by the startup.  I’ll indicate below some possible approaches to validation in each section of the investment memo.

There is a one-summary, which includes the recommendation.  Each section in the summary has 1-2 lines.

Recommendation: either proceed to a term sheet OR recommend not to proceed with the reasons why.

Each of the six sections in the one-page summary also contains: recommendation: yes or no and why, plus any critical read flags

• How does the company create value for customers and itself?
• What are the plans?
• Investor specific
• What is being asked of the investor?
• Legal documents
• Historical results.

Detailed report

Each section of the detailed report starts with the summary information from the one-page summary.

Each section/subsection of the report contains:

• Indication of whether or not the due diligence question was answered
• Indication of whether the answer was a “pass” or “fail”.
• Any red flags.
• Any input from third party experts.
• Any input from the investors primary and secondary research.
• Any results from the actions noted below.

#1 How does the company create value for customers and itself

Target Customers

• Interview potential and current customers.
• Assess market size determination (TAM, SAM, and SOM) and review sources cited.

Value proposition

• Review some or all interview notes from potential or current customers.
• Review some or all survey responses from potential or current customers.
• Review analysis of interview notes and survey responses.
• Interview potential and current customers

Channels

• Review some or all interview notes from potential or current customers.
• Review some or all survey responses from potential or current customers.
• Review analysis of interview notes and survey responses.
• Interview potential and current customers regarding their expectations.
• Review detailed financial information to validate appropriate allocation of costs & revenue to: CAC (Customer Acquisition Costs) and calculation of LTV (Life Time Value)
• Review calculation of the churn rate.

Key Partners

• Interview current and potential partners.

Key resources

• If patents, check with patent offices
• If trademarks, run a trade mark check
• If contracts, call third parties to validate
• Have all required resources been identified?

Key Activities

• Have all required activities been identified?

Cost structure

• Assess whether the cost-drivers are in fact cost-drivers.

Charging customers

• Review some or all interview notes from potential or current customers regarding value and pricing.
• Review some or all survey responses from potential or current customers regarding value and pricing.
• Review analysis of interview notes and survey responses regarding value and pricing.
• Interview potential and current customers regarding their expectations regarding value and pricing.
• What are competitors or similar companies charging?

Talent

• Assess team bios for relevant skills and experience
• Run a background check on the team.
• Are the founders emotional or irrational under pressure?
• Do the founders have empathy?
• Are the founders unable to clearly and easily communicate their pitch.
• Are the founders arrogant or overconfident?
• Are the founders transparent and honest?
• Are the founders fully committed or is this a part time effort?

#2 What are the plans?

• Does the 24-month Gantt chart reflect the key milestones?
• Is the 24-month Gantt chart plausible?
• Review the detailed allocation of costs and revenues to validate the calculation of LTV and CAC.
• How does the LTV to CAC ratio change in the cash flow forecast? How does it vary by customer segment, channel, and partner?

#3 Investor specific

• Are the presentation decks (oral and standalone) consistent with the rest of the due diligence material.
• What are the issues with the current and forecast cap table? Do the founders have enough equity.
• What are the options for an investor exit?
• How long has the fundraising round been open, what’s been committed, by whom?
• Who is the lead investor and what is their reputation?
• Are previous investors following on? If not, why not?

#4 What is being asked of the investor?

• What are the issues regarding terms and valuation?

#5 Legal documents

• Who has the legal right to make what kinds of decisions under what conditions? Review loan agreements, voting trust agreements, shareholder agreements, board of directors and committee mandate, delegation of authority to CEO, etc.

#6 Historical results

By target segment, by channel, by partner, by cohort.

• Monthly growth rate in number of cash paying customers, and revenue.
• New customer value achievement leading indicator (e.g. for Slack it was 2,000 team messages sent within 60 days).
• New customer success metric (e.g. % of new customers achieving new customer value achievement indicator within 60-90 days).
• NPS (Net Promoter Score)
• How many similar competitors have failed in the past? Why? How is this startup different?

Next steps

Regardless of what type of investor you are:

• Prepare your list of deal-killer criteria and deal-killer unanswered questions.
• Prepare a one-page investment memo.
• Customize the due diligence questions and due diligence report to reflect the specific nature of investor and the nature of the investment. The due diligence questions, due diligence report, due diligence cost and time invested will be very different for an angle investor contemplating a $25,000 investment in a pre-revenue company vs an investment funding contemplating a $10 million investment in a company that is scaling.

Footnotes:

¹ Due diligence questions for an early stage startup: https://koorandassociates.org/selling-a-company-or-raising-capital/due-diligence-questions-for-an-early-stage-startup/

Further Reading

Definition of startup terminology and metrics: https://koorandassociates.org/selling-a-company-or-raising-capital/startup-terminology-and-metrics/

Red flags for any investor to consider:  https://medium.com/swlh/red-flag-list-for-vc-deals-9beea446270d