Investor Connect Podcast

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

There are three phases to diligence before funding a startup:

  1. Documentation diligence
  2. Team diligence
  3. Domain diligence

For documentation diligence, ask the startup for a list of key documents for diligence.

The key documents include: 

  • Entity filings and articles of incorporation
  • Patent filings
  • Income statement
  • Balance sheet statement
  • 3-5 year financial projections
  • Cap table

These are the documents you will review. Other documents related to the business such as lawsuits, by-product breakdowns, by-customer breakdowns should be requested if appropriate. 

Read each document and check to see if it matches what you understood about the deal. Note any differences and ask for clarification.

It’s important you review the diligence documents so you understand the business. You may need to sign a Non-Disclosure Agreement (NDA) for sensitive information. It’s standard practice to do so in due diligence as the information should be kept confidential even without an NDA in place.   

Team diligence is the most critical part of the process. Meet with the team and assess their skills. In almost every startup failure, the investor can trace it back to the team not being up to the task. It may be the task was underestimated by all upfront, but with the right team, the company can succeed.

In most cases, you’ve heard the CEO pitch, but it’s important to understand the CEO’s skills set including what is there and what is not.  

The rest of the team needs to bring the necessary skills to succeed.

For domain diligence, check the positioning of the company in the marketplace.

Identify the value proposition and how well it resonates with customers. 

Look at their pricing compared to the competition.

Check the industry to see the conditions in which it will grow or decline.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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Direct download: Startup_Funding_Espresso_-_Financials_Team_and_Domain_diligence.mp3
Category:general -- posted at: 6:00am CST