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Internet VC Investment Analysis Questionnaire

11 Feb Internet VC Investment Analysis Questionnaire

Perhaps the most sure-fire method for getting the attention of your venture capitalist is through the recommendation of a previous entrepreneur or colleague. Legitimacy is often about experience, but the benefit of playing the “who you know” card is, and always will be, the best method. First and foremost, rely on your network and your relationships when seeking funding for your business.

  • What can you tell me about the product or service being offered? How do you differentiate your product or service from the others on the market for your particular industry?
  • What type of customers are buying your product or service? How many customers do you have? What type of customer profitability do you garner?
  • Please list off competitive advantages and major distinctions from the competition. How will you continue to adapt to ensure your competitive advantages remain intact after the business transition?
  • Who are your competitors? How do they compete directly? How do they compete indirectly? Where do you fit in within the industry taxonomy relative to the competition?
  • How will markets (public and private) react to the cash flows generated by your company? What types of betas, WACC, and market multiples are common in your industry?

Each of the aforementioned questions could and will produce more follow-on questions which will ultimately provide the VC with about as much information as he/she may need to know in the event your company receives an investment.

In general, venture capitalists are data-mongers. They scour business plans looking for patterns of previously successful businesses. Believe me, most VCs are able to spot winners rather quickly. It may be a differentiation strategy that creates market leadership in a particular (often newer) field, it could be a significant competitive barrier or even a highly-technical team of whiz-kids. Combinations of the aforementioned help, but something must stand out for investors to want to throw cash at a deal.

As part of their data-mongering, VCs like great economics. If a deal lacks core, believable economic data to back up the value prop, it’s dead in the water. The value proposition includes the following key features/questions:

  1. Cost of product production or service offering
  2. Cost to sell the product (marketing)
  3. How many estimated customers can you bring in? Or, in other words, what’s the size of the market and what % of the market can your business effectively capture?
  4. Retail/wholesale prices for your products or services
  5. What type of margin is left over after you cover all costs involved? In other words, what will the business eventually throw-off in free cash flows?

When it often takes millions of upfront investment–especially in the start-up world–the answer to #5 on margin is absolutely critical to winning over investors. They don’t just want 10% returns, they bet on many deals knowing that only a small few will ever really explode and become huge successes. Your pitch is three parts: you and your team, your product, and your plan. Perfect all three and VC money is much more easily acquired.

 

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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