Diligencing the Financials

Diligencing the Financials

April 8, 2022 by investor

Diligencing the Financials

In diligencing the startup’s financials, ask the following questions:

What is the key assumption behind the financials?

Does it assume a product will reach the market at a specific time?

Does it assume we’ll have hired new team members by a certain date?

What funding does the plan assume?

What price and unit volume were used to set the sales forecast?

How do the margins compare to similar companies? Are they in the same ballpark?

What salaries are forecasted, and are they reasonable for this stage of business?

How will the funds be used?

How detailed are the numbers? Is everything rounded up to the nearest thousand dollars, or does it demonstrate specific knowledge of costs?

Big round numbers signal a swag.

What is the cash runway shown by the financials?  

What does the debt, credit card debt, and unpaid expenses add up to?

The financials tell you, the investor, what the startup knows and is thinking. 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.

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