William Poon: Cornell Tech FM

Original Article BRV Due Diligence Framework Pt. 2

Continued from Part 1.

Traction

Startups will need to show the investor that they’ve been making traction. If the founders are still shopping around an idea for the past 6 months without building anything, it signals that there might not be much more than an idea. Traction will include anything from development of the product, growth in the form of pilots, users, revenues, etc.

Are there paying customers?

Engagement metrics

DAU, daily active users

MoM (Month-on-month) Growth

Churn

NPS, Net Promoter Score

CAC, Customer acquisition cost

LTV, Lifetime Value

CAC: LTV

Contracts/LOIs

Competitive Advantage

What makes this startup special? What’s their special sauce that other startups can’t simply copy? This could be intellectual property in the form of patented technology, a strong brand, a niche industry that requires knowledge that only the founders possess, etc.

Direct and indirect competitors

Is there a sustainable competitive advantage?

Founder/Industry Fit

Team

The startup team as well as the advisors are extremely important. Just because you have a good idea does not mean that you’re the right person to bring it to market. A founder might have had a great idea about an innovative way to build a bridge but they’ve spent their entire academic and work experience in biology. The main idea behind this is whether the team has the knowledge, skills, experience, and network to accomplish the goal of growing a successful startup. Perhaps most importantly is — do they have the drive needed to run a startup? They have to be so passionate about the problem that there’s nothing else they think about or would do other than this startup. Are the founders people that the investors will want to build a relationship with? Are they willing to grow, learn, and accept feedback from others? Are they honest and trustworthy? Will they tell you when something is going wrong in the startup?

Startup/fundraising/exit experience

Relevant industry expertise

Origin story and motivation

Skin in the game

Any missing pieces

Exit potential

The investor will want to know that they can make money from investing in the startup. Otherwise, the investor could have better luck at the casino or invest in index funds. VCs are typically looking for 10x or more returns. VC is a hits business and because of the high failure rate, the more startups they invest in with a high potential for return, the better the returns will be.

Use of funds and funding associated milestones

Exit strategy

Return potential

I hope that this in-depth explanation will help founders, investors, and other student-run VC funds in the future. If you have any questions please feel free to contact us at contact@brventurefund.com

Contribution from Thatcher Bell, Jennifer Chu, and Nicole Beck.