Nine Questions for Evaluating a Business Plan

Lea Boyea of Freshtracks Capital gave a presentation the other day at the Vermont Center for Emerging Technologies about the many questions that are asked of a start-up company before they receive venture capital funding. I thought this was particularly well presented. Although Lea claims that the nine questions are not original, I searched in vain using Google to find another mention of them, so until I hear otherwise, I’ll credit them to Lea and Freshtracks.

These same nine criteria could be modified to fit non-profits who are looking for grant funding. If you want people to give you money, you have to be in a position to explain why they should consider it.

Here are my notes from the session handouts.

Management Team
Completeness of team
Domain Expertise
Growth Company/early-stat expertise
Previous successful exits
Previously raised investment capital?
Interest and wilingness to bring in active investors

Market Opportunity
Size of Market
Growth of Market
Fragmentation of Market
Is the market likely to have one, a few, or many winners?

Value Proposition/Consumer Pain
What Is the problem being solved
How painful is the current process for your customers
How willing/anxious will they be to switch from their current solution?

Technology (Product/Service)
What is the unique technology that you are providing with your product or service?
10 x less expensive or 10x more effective than competition?
How revolutionary/evolutionary is it?
How proprietary is i?
Can it be protected via trademark, patents, business secrets?

Business Model & Go-To-Market Strategy
Make it once, sell many times
No real estate, restaurants, or retail
Distribution strategy
Sales process and Sales cycle
Scalability
Pricing/ Recurring revenue? Margins?
Financial Projections
5 year Profit & Loss Revenue, Direct costs, Gross Margins, SG&A, Net Profit
Balance Sheet which inofrs cash collection cycles and working capital requirements

Competition
Who are your competitors?
How are they solving this problem differently?
What are their unique attributes?
How well capitalized are they?
What kinds of competitive hurdles will you bump into in the sales process?

Valuation and Capital Needs
Pre-money valuation? Percentage of company ownership?
Capital needed in this round of financing?
Capital needed in future rounds of financing?
Common Stock sufficiency/equity incentives

Deal Dynamics

Terms and Conditions
Timing
Co-Investors
Deal Structure
Governance- Board Composition

Exit
What is the likely exit sale to financial or strategic buyer, IPO, recapitalization?
If acquisition, who are the likely acquirers?
What time horizon
Expected multiples?
Return on investment?

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