Pilots, no matter how many flying hours they have, never take off without checking their pre-flight checklist. The risks of oversight, missing a mechanical or procedural failure, etc are too severe not to ensure all systems are go.
I put together an analog to the pre-flight checklist - a new deal checklist - that I hope will similarly help avoid losses due to "pilot error."
In the spirit of transparency, please see my list below and let me know if you think I am missing any core issues.
Can I understand the business?
what is the product?
what is the value?
who is the buyer and why would they buy?
can the buyer quantify the value? If so, what unit?
Is the market attractive?
Is there a fundamental disruption that is the basis for the opportunity and limits the incumbent's competitive response?
Market --> SaaS, Open Source, Mobile
Product --> core innovation
Is the product delivered in a buyer appropriate way?
open source for infrastructure
SaaS for a business app buyer
Is the core value tied to a technical innovation?
Are their frictions in....?
time and resources required to test the value proposition?
time and resources required to deploy?
time and risk to realize value?
Is there a good market comparable for both the business model and the exit multiple?
What unit scales the revenue model?
page views, sales heads, downloads, sessions?
Is the architecture scalable and does it leverage the best available infrastructure -AWS, etc?
Are there exogenous dependencies?
carrier or MSO deals?
Is there a market master?
WMT or MSFT or AMZN or GOOG....
Who is the incumbent? How will they react?
Who are the other new companies in the space?
Is the team able and honest?
Prior track record of working together?
Is the culture functional, healthy, and an asset, or is it political, mercenary, and divisive?
Is the CEO special?
What is his/her motivation, passion, strength?
Where do they need help and complement?
Are the round size and pre-money reasonable?
Is the model reasonable (profit margins, growth, burn)?
Is the plan capital efficient?
how much money for 18 months?
margin of safety?
are their clear milestones in the plan that will allow for an objective assessment of value creation - ie a new investor
Can this be a homerun?
What are the core risks?
why will the company fail? is there a plan in place to mitigate such risks?
What are the KPIs - ie leading indicators to measure and track the company's progress?
Is the cap table clean and the paid-in capital reasonable?
Is the progress to date commensurate with the money in?
Has the money in to date been productive?
While I am sure there are risk and questions not raised above, the goal is to systematically measure a prospect against a consistent analytical framework that, hopefully, ensures smooth take-offs, flights, and landings.