Seven Key Questions for Evaluating a Company

1) What is the product/service?   

  • Product/service characteristics
  • Nature of the product (disruptive technology, better solution, lower cost, etc.)
  • Differentiation
  • Barriers to competition

2) Who is the company? 

  • Management (prior business/background, personal motivation, ownership, compensation issues, personal financial condition, “right stuff?”)
  • Ownership (visa vie key managers, Board involvement, implied valuations)

3) What stage is the Company?

  • Revenue history, profitability, operating cash flow 

4) Who are the customers?

a) Historical and/or projected

b) Macro issues

  • Aggregate market size
  • Drivers of demand (fear versus greed)
  • Competition

c) Micro issue

  • Target list of near-term customers
  • What drives a given customers decision to buy the company’s product
  • Sales/marketing plan (short-term and longer term, branding)

5) How is the product/service produced? 

a) Creating the deliverable

  • Pre-production (talent required, IP, regulatory, site selection, capex required, construction timeline, etc.) 
  • Production processes (cost, complexity, vulnerabilities, logistics) 

b) Challenges to production/competition

  • Regulatory, “art”, capex, logistical
  • Barriers to entry

6) How does the company make money?

  • Gross margin analysis
  • Pre-tax profitability and cash flow
  • Balance sheet review (capitalization, use of debt)

7) How will investors be paid back?

  • Equity – what is the future liquidity event (strategic sale, recapitalization, IPO, etc.
  • Debt – Company’s cash flow generating capacity, etc.