Checklist Checklist

Tag: VENTURE CAPITAL

  • #29 VENTURE CAPITAL Buyer Checklist You Need To Know Before You Spend Your Money. 60 Buyer-Beware Intelligence Points.

    1. Venture investing can involve extreme loss risk.
    2. A promising startup can still fail.
    3. A great product does not guarantee a great investment.
    4. Revenue growth may depend heavily on future capital.
    5. Future fundraising may not happen.
    6. Dilution can materially reduce ownership.
    7. Preferred shares may have rights ordinary shares do not.
    8. Liquidation preferences matter.
    9. Anti-dilution provisions matter.
    10. Convertible instruments can have complicated economics.
    11. Valuation isn’t the same thing as intrinsic value.
    12. High valuation creates a higher performance hurdle.
    13. Founder risk matters.
    14. Key-person dependency matters.
    15. Customer concentration can be dangerous.
    16. Burn rate can change rapidly.
    17. Runway can disappear faster than expected.
    18. Competitive threats can emerge suddenly.
    19. Regulatory changes can destroy a business model.
    20. Exit assumptions may be unrealistic.
    21. IPOs are rare and uncertain.
    22. Acquisition isn’t guaranteed.
    23. Secondary liquidity may not exist.
    24. Investors can lose 100% of their capital.
    25. The question is not merely “How big could this company become?” but “What must go right for my investment to work?”

    B. PREMIUM BUYER CHECKLIST

    COMPANY

    ☐ Legal entity verified
    ☐ Founders identified
    ☐ Ownership structure reviewed
    ☐ Product/service understood
    ☐ Market defined
    ☐ Competitive landscape reviewed

    FINANCIALS

    ☐ Revenue verified
    ☐ Revenue quality examined
    ☐ Gross margins
    ☐ Burn rate
    ☐ Cash balance
    ☐ Runway
    ☐ Customer concentration
    ☐ Debt
    ☐ Outstanding obligations

    CAP TABLE

    ☐ Current ownership
    ☐ Preferred/common structure
    ☐ Option pool
    ☐ Convertible securities
    ☐ Warrants
    ☐ Existing investor rights
    ☐ Expected dilution

    INVESTMENT TERMS

    ☐ Valuation
    ☐ Security type
    ☐ Liquidation preference
    ☐ Conversion rights
    ☐ Voting rights
    ☐ Anti-dilution
    ☐ Information rights
    ☐ Pro-rata rights

    FUNDING RISK

    ☐ Current runway
    ☐ Next funding requirement
    ☐ Likely funding environment
    ☐ Down-round scenario
    ☐ No-next-round scenario

    EXIT

    ☐ Realistic acquisition candidates
    ☐ Comparable exits
    ☐ IPO assumptions challenged
    ☐ Time-to-exit considered
    ☐ No-exit scenario modeled

    FINAL QUESTION

    If the company never raises another dollar, what happens to my investment?