You're evaluating a startup with scarce financial data. How can you ensure thorough due diligence?

1 Team Analysis

When financial data is lacking, the startup's team becomes a critical focus. Evaluate the founders' and key team members' backgrounds, experience, and track records. Look for a history of industry expertise, successful ventures, or relevant accomplishments that could signal their ability to navigate the startup to success. The team's passion, commitment, and vision can often be indicative of the startup's future performance, so engage with them directly to gauge their capability and drive.

2 Market Potential

Understanding the market potential is essential. Research the industry, the startup's target market, and its growth prospects. Analyze competitors and the startup's unique value proposition to determine if there is a real demand for what the startup is offering. Even without extensive financial data, a thorough market analysis can provide insights into the potential for scalability and long-term success.

3 Product Viability

Assessing the product's viability is another key element. Examine the startup's product or service critically. Is there a working prototype or minimum viable product (MVP)? How have customers or users responded to it? Feedback from early adopters can be incredibly telling. Even without sales figures, customer testimonials, reviews, and engagement can help you understand the product's strengths and weaknesses.

4 Financial Projections

Scrutinize any available financial projections carefully. Startups often have forward-looking financial statements that include projected revenues, expenses, and cash flow. While these are based on assumptions, they can give you a sense of the startup's financial planning and expectations. Ensure that the assumptions are realistic and consider creating your own projections based on conservative estimates to compare.

5 Legal Structure

Investigate the startup's legal structure and any existing contracts or obligations. This includes understanding the type of entity, ownership rights, intellectual property issues, and any outstanding legal matters. A thorough review of legal documents can reveal risks and liabilities that might not be immediately apparent from financial data alone.

6 Risk Assessment

Finally, conduct a comprehensive risk assessment. Evaluate the startup's industry risks, market risks, and any operational risks. Consider how external factors such as economic downturns or regulatory changes could impact the startup. By identifying and analyzing these risks, you can better understand the potential challenges the startup may face and whether they have adequate strategies in place to mitigate them.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?