Checklist For Evaluating Startups

Before investing in a startup, I ask these questions which are based on PASTOR framework

Time to time, I work with VCs to assess a startup before they invest. These are the questions I ask to assess the startup. Hope these are helpful to you. If you want to chat about your startup or want me to assess a startup, contact me via email.

This article uses PASTOR framework to evaluate a startup.

Problem

  • Where does the problem lie in Maslow's hierarchy?
  • Does it need a pain killer or a vitamin?
    • would it be cut if there is a budget cut?
  • Does the problem change its meaning and impact as per the context of the users?
  • What is the lifetime of the problem?

Existing Alternatives

  • Is the problem novel and not solved so far?
  • If the problem is solved in some fashion how is it solved, what’s the cost, what are the flaws in the current solution?
  • What is the possibility that the current solution can scale to replace the solution proposed here?

Audience

  • Reaching an audience is sales-driven or marketing-driven?
  • Do marketing materials reflect the transformation possible through the solution

Actual Users

  • who are the actual users of the solutions (ex: kids for toys)?

Influencers

  • Who influences the users?
  • Who influences the economic buyers?

Economic Buyers

  • Are there clearly identified, economic buyers? (In a bureaucratic system the EBa aren’t clearly defined)

Channels to meet these audiences

  • If influencers and economic buyers are different from actual users, how will you reach influencers and economic buyers?

Immediately Addressable Market & Totally Addressable Market

  • What channels are best to reach the IAM?
  • What channels are owned, paid, earned, and rented?
  • What are the adjacent markets that you can seep into?

Solution

  • Is there an experience factor built into the solution?
  • Is there stickiness in the solution?

USP?

  • what is the moat?

Technology

  • Architecture and Design

    • Maintainability
    • Extensibility
    • Flexibility
    • Scalability
    • Testability
    • Security (API end point security, data security, data storage security, SSL)
    • Data security (in-store, in-transit, data compliances)
    • 12 factor app compliance
    • Multi-tenant? Why and why not?

  • Operation and Management

    • Reliability
    • Performance
    • Availability
    • Functionality
    • Correctness
    • Monitor ability
    • Versioning and Licensing

  • Source Analysis ( Sampling)

    • Components and Software Inventory
      • Open Source
      • Closed Source
      • Original
    • Static code analysis (linters / analyzers )
    • Code Quality Analysis
    • Tools and Best Practices
    • Test scripts / automation

  • Build and Deploy

    • Tools
    • Continuous Integration
    • Deployment Model and strategy
    • Capacity

  • Governance and Compliance

    • Governance framework
    • Compliance Framework
    • Business Continuity
    • Data Exchange

Product Roadmap

  • Planned roadmap of features in existing product
    • Qualitative comments on major features, differentiators, priorities
    • Time and cost estimates
  • New planned products
    • USP and features
    • Time and cost estimates

R & D

  • Current R&D portfolio — mature, in-progress, and planned
  • Assessment of R&D production readiness and alignment with product roadmap
  • R&D capabilities - people, processes, and performance

Team

  • does the team have what it takes to pivot the solution if needed?
  • Is there cohesiveness in the team?
  • How do they resolve conflicts?
  • Do they have a “disagree but commit” culture?

Transformation

  • How will the transformed situation of actual users, influencers, and economic buyers look like?
  • Do the users need the solution continually to keep the transformation or can they wean off the solution?
  • Does the solution has an inbuilt mechanism for word-of-mouth spreading of the transformation?
  • Does the solution has a mechanism to receive feedback on the transformation?
  • Does the solution has a leaderboard to reward usage?

Metrics?

  • What are the leading and lagging metrics?
  • Are there different metrics for different types of audiences?
  • How can you identify usage and non-usage of the solution?
  • What is the process to engage and attract the churned audiences?

Offer

  • what is the price of the solutions?
  • is it variable price (per usage)?
  • is there a membership fee?
  • does the price differ according to the membership fee?

Cost Structure

  • What is CAC?
  • How much is spent on product development?
  • How much is spent on Marketing & Sales
  • How much is salary (top mgmt mainly)?
  • Is sales commission based or fixed salary?

Financials

  • Sales growth over the years
  • Is there Pricing power?
  • What are the gross margins?
  • If there are competitors, what are they charging?
  • Is there a need for consistent CAPEX and working capital to grow?
  • Is it generating more cash than expenses?
  • Percent of depreciation costs compared to the gross profit (lower is better for competitive advantage)
  • Are there debt & interests?
  • What is the average DSO?

Rewards

Revenue Streams

  • Life Time Value
  • Is there a single revenue stream or multiple?

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