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10 Key Questions Evaluating Investment Opportunity Cheat Sheet (DRAFT) by [deleted]

Basic questions to evalute invetsment opportunites

This is a draft cheat sheet. It is a work in progress and is not finished yet.

The Challenge

The challenge for entrep­reneurs is to incorp­orate these questions into their own opport­unity self-a­sse­ssment process. Doing so will improve the quality of the entrep­ren­eurial process greatly for all parties involved.

5 Basic Consid­era­tions

1. MARKET
Is there a market that can be identified that has an appealing growth potential? (Does it exist or it should be created? What is the feasib­ility of entry and to what extent?)
2. OPPORT­UNITY WINDOW
Is this the right time? (Why today? Why not yesterday? Too early? Too late? How long will the window remain open?)
3. COMPET­ITION
What is the existing and likely compet­ition? (And to what extent has the sector in which the venture attempts to operate been adequately evaluated, i.e., entry barriers, new entrants, substi­tutes, customers, suppliers, etc.? What is the profit potential in the this sector?)
4. BUSINESS MODEL
Does it have an econom­ically, and concep­tually viable, business model? (Margins, profits, breakeven, etc. What is the required know-how? To what extent can it be protec­ted?)
5. STRATEGY
Does it have a focused and differ­ent­iated strategy? (Who are the customers? How are they acquired and retained? What is the value propos­ition to the customer? How sustai­nable is the compet­itive advantage? What operating advantages can be gained from focus?)
By weighing these “ordinary” issues investors and entrep­reneurs alike are able to better understand how attractive and viable a business opport­unity is. However, for investors an “attra­ctive” and “viable” opport­unity is a necessary condition but not sufficient to finally support a decision; the opport­unity must also be deemed “inves­table.”
 

Additional Questions

1. SCALAB­ILITY
Is the concept scalable? (Or similarly, how big could it become, and as it gets bigger and bigger, how much more profitable will it be and to what extent could the concept be easily replic­ated?)
2. EXIT
Is there a possible exit for the investor to recover his/her investment with the expected return? (What are the likely options to exit? Can tag or drag along rights be consid­ered?)
3. CO-INV­ESTMENT
Can the project attract other co-inv­estors to come on board? (If so, to what extent are they likeminded partners to co-invest with? To what extent can other potential co-inv­estors be spotted within the investor’s own network?)
4. RETURN
Does the deal provide an adequate return consistent with level of risk implied? (At what stage of develo­pment is the project (techn­olo­gy/­pro­duct, financial metric­s/r­eve­nue)? What is the probab­ility of getting an IRR of -100%, 0%, 10%, 20%, 50% or 100%?
5. TEAM
Does it have a complete, committed, compatible and comple­mentary management team (4 C’s)? (Have they work together before? To what extent are their skills comple­men­tary? What are the personal object­ive­s/v­ision of the team’s key members? Are they the kind of people with whom one is able to get on well, and develop a good relati­ons­hip?)
Investors are always trying to identify attractive business opport­unities from good business ideas. However, they partic­ularly need to be very discip­lined about selecting “inves­table” opport­unities out of the many business opport­unities that they come across. Making an investment decision is a complex process. Knowing what questions to ask can help investors find the right answers to effect­ively support their decision.