What do investors need to know about the startup to invest?

Typically, investors who are not completely naive will need to know the following things:

Litmus test questions:  

• Is it a GREAT team? A team that works well together, has the requisite skillset, and the grit to overcome obstacles and figure it out together when they encounter hardships?
• Is it a big enough idea with a big enough market?
• Are they working on an idea that fits in with our investment thesis?

Nuts and bolts questions:

• How much are you raising? (huge range from a couple tens of thousands of dollars to millions of dollars)
• How long will this last? (Typically 12-18 months. Any less- and you will be hugely distracted constantly raising money and not getting stuff done)
• What do they get with this money? This is the business and strategic milestones they expect to see. For instance. Stuff that fits and obviously cost money:
  • Build out the sales and marketing department to power the direct sales organization for enterprise sales
  • Acquire ABC customers in certain time frames (e.g. pilot, full rollout, etc; seat count, other measures of scope and scale)
  • Build out tech functionality to support the acquisition of ABC customers
  • Strategic hire for e.g. a Chief Something Officer to round out the leadership team
  • … etc
• How do you intend to run the business to arrive at the above milestones?
  • Think about the org chart. How will you organize the humans to do the work?
  • Think about the program plan. What is the working approach? How do you break down tasks and work? What resources do you need (headcount, license fees, equipment etc)?
  • Think about the operating plan. How are you spending this money and how fast
    • For a software company this typically shows up in headcount and consulting fees if applicable.
    • For regulated industries like healthcare and financial applications, add consulting fees and testing fees to arrive at regulatory compliance
    • For a hardware company, add consulting, prototyping costs, and any tooling costs ( if applicable and not covered with a separate line of credit or venture debt)
• What are the terms for the promissory note?
  • What is the discount?
  • What is the valuation cap if any?
  • What is the maturity date if any?
  • What are the provisions upon an exit event such as an acquisition prior to maturity date?
  • What are the provisions if the company does not raise a round within the maturity period of the loan?
  • … etc