Posted on May 25, 2021 @ 08:58:00 AM by Paul Meagher
Andrew J. Sherman in his book, Raising Capital (2012, 3rd Edition), provides a useful list of 10 questions that, in his experience, all venture investors ask (p. 18). I am repeating them below. Andrew claims that the answers to these questions determine if and how the deal gets done.
- How much can I make?
- How much can I lose?*
- What is my exit strategy from this deal?
- Who else says this deal is viable?
- Does the founder (and others) already have resources at risk?
- What other value (beyond money) can I bring to the table?
- Can I trust this management team?
- Is this company's target market large, growing (not stagnant or shrinking) and reachable?
- Does the company have (or will it have) a sustainable competitive advantage, as a result of either operational effectiveness, its strategic positioning, or its intellectual capital or other barriers to entry?
- Is the company's business, revenue, and profit model credible, verifiable, efficient, and sustainable?
* Andrew points out that investor loss is not just equal to the investment made but could be much more and include "potential liability costs, reputation costs, favors/chits used, time costs, commitments to follow-on capital, and other such factors".
These are good questions for entrepreneurs to consider so they can see things from an investor perspective and anticipate the type of due diligence questions they might be asked by potential investors.