Diligencing the Use of Funds
In diligencing the startup’s use of funds, check the following points:
– How much is spent on compensation?
– Is it appropriate for an early-stage company?
– How much is spent on sales, and does it align with the company’s sales strategies?
– How much is spent on marketing, and what assurance is there that the funds will be well deployed?
– How many new hires are being brought on, and when?
– How does this affect the company’s cash position?
– Does the plan miss any important requirements, such as filing full patents on the provisionals?
– Does the spend match with the growth strategy, and are the investors and team aligned on that strategy?
It’s often the case the investors want one growth plan and the startup wants to pursue a different one.
Gaining alignment upfront on these issues prevents problems in the future.
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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.