Checklist for entrepreneurs seeking funding.

Pre-Amble

Hopefully these questions make meetings between entrepreneurs and investors more efficient. According to ‘Crossing the The Chasm Marketing and Selling High Tech by Geoffrey Moore startups have to cross three ‘Chasms”.  The questions are grouped by Chasm.

Definitions

Chasm One: Idea to Prototype. This covers those who have an idea or maybe lots of ideas. These ideas maybe so vague that the founder only knows that they want to start a business. They need to get across the Chasm One to a working prototype. If it is an app then they need a working app, if physical product then they need some samples.

Chasm Two: Prototype to Business Model. In this phase they will be taking money from users. The enterprise will not be making money but it might show an operational profit but, the pitch normally says, due to ‘ongoing development costs’ it is not in overall profit. This is the hardest Chasm by far.

Chasm Three; Working Business Model to Scale. Hard and Risky. New skills needed. Might mean new people. Probably needs money but the option to grow organically but a bit more slowly should be considered.

Questions that apply to all stages.

The founders are clearly ‘starters’ but does their life story contain evidence that they are also ‘finishers’. Have they had success? How did they respond to set backs? Will they get bored and drift away? Can they Focus[1]

Are they realistic about the impact a start up will have on their lives and relationships? Do they have the intensity needed to get others to believe in them, gain clients and generally  keep it all going?

Are their expected levels of reward/salary low enough to be respectful of investors, but high enough to be sustainable relative to their commitments? What is their attitude to expenses etc? Will they run a frugal business until they make money?

Are they really entrepreneurs characterised by eeking value out of nearly nothing, always working with less than they want, obsessed with offering customer value? Or do they have more casual approach to investor cash leading to multiple investment rounds and consequent dilutions. Are there likely to subsequent rounds and how will the interests of incumbents be protected?

Is each round of finance genuinely elective to build more value? Or is it a necessity to save the business? If it is elective and only to build new value, then why not stop the development a while, get cash positive and then use cash to fund the growth. If it is not elective (ie more cash is needed to run the business) then is the market telling us something about the proposition; or the team.

What is it that founders do not know? What is their approach to what they do not know?

Is there a location ie office. Is everyone there? What is the attitude to employee attendance, social media use and sickness. Can the appropriate startup intensity be created if this is a location agnostic business where everyone works where they like?

Risks

Partnerships are a bigger risk. Most partnerships fail; worse still some succeed!

Is there a clear leader/decider? What is the mechanism for divorce if circumstances change. Why are all partners vital to the start up? Can the skills of one or other not be bought in? Do the starters complement each other. (Think Steve Jobs and Steve Wosniak)

Chasm One questions. (Idea to Prototype)

What is the customer benefit of the idea? What customer problem is the business solving for them. Make sure it is not a solution looking for a problem.

If the founder has no biz idea then ask who they are? What are they are passionate about? What do they know? Recall that Apple start up folks were music geeks who just happened to make good computers.[2] They were driven by making digital music easier to work with. Viable ideas will come from the founder’s established passions.

If this is a real customer problem why is it not being solved now? If someone is solving it, why have they not created the monopoly that is normally the result from www enabled solutions?

Why you? Are the founders credible solvers of the problem they have chosen to address?

Are any differentiators real and based on capability that is not already in the market? Avoid quality based differentiators which are generally weaker and harder to sell to clients. And there is always the danger the market leader will up their game making it much harder for the entrant.

Is this an equity-value business with renewable income, unique technology. etc

Is this a trading business in which case there will be competition. And www quickly creates a near perfect markets in which power moves ever more to the buyer. The winner is the one who take costs out of the operation soonest. A monopoly quickly emerges. Is there a monopolist supplier already there. Why will the founder gain any market share?

Chasm Two Questions. Prototype to Biz Model.

What do founders understand by Brand. What are the Brand values and benefits. What emotional benefit are they selling to the user. Is the brand, motivating, understandable and believable.

Can founders sell? Are they relying on hired sales capacity. Risky. Have they studied sales closely and are they able to map their vision onto a professionalized sales strategy.

Chasm Three; Biz model to Scale

Cash How do they know how much money will be in the Bank in say 90 days time. Do they make decisions that are sensitised to cash risk.

Sales. Are they open to systemizing the sales process so it can be scaled. Or do they believe in a sales messiah i.e. Sales Director. Avoid.

Is the reporting of past performance readily available and given to investors?

[1] Daniel Goleman: Focus

[2] Simon Sinuk Ted Talk. The Why

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