The Startup Survival Kit

The Startup Survival Kit

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So, you’ve survived the seed stage—congrats! Your startup is no longer a PowerPoint slide with a dream. But now, as you eye that sweet Series A cash, investors will dissect your business like a frog in a high school biology class. Fear not! Here’s a brutally honest (and slightly sarcastic) due diligence checklist to prep you for the scrutiny.

1. Financial Health: “Show Me the Money… and Where It’s Going”

Investors want to know if your “burn rate” refers to cash or your soul.

  • Revenue Validation: Prove your revenue isn’t just your mom buying 100 units of your “artisanal kombucha socks.” Example: WeWork claimed “community-adjusted EBITDA” until reality adjusted their valuation.
  • Profit Margins: If your margins are thinner than a Silicon Valley latte, explain why. Bonus points if you’re not selling dollar bills for $0.90.
  • Cash Flow Analysis: Track runway like it’s the last slice of pizza. Example: A startup boasting 24 months of runway… until they hired a “wellness concierge” for the office.
  • Debt & Irregularities: No, “creative accounting” isn’t a legit term. Disclose loans, or risk investors finding out via your ex-CFO’s LinkedIn rant.

2. Legal Standing: “Are You Secretly a Lawsuit Factory?”

Because nothing says “pass” like an undisclosed patent troll lurking in your closet.

  • Registrations & Permits: If your business is registered in your cousin’s basement, fix it. Theranos had labs; you need licenses.
  • Pending Lawsuits: List them. Yes, even the one from the intern who tripped over your “minimalist” office decor.
  • Contracts & Policies: Ensure your Terms of Service don’t include “we own your firstborn.” Example: A startup whose user agreement accidentally granted customers equity.

3. Daily Operations: “Is Your Supply Chain Held Together by Duct Tape?”

If your “supply chain” is you biking parts from eBay sellers, investors will notice.

  • Operational Efficiency: If shipping takes 3 weeks because your “warehouse” is your garage, say so. Casper sold mattresses, not excuses.
  • Vendor Reliability: If your key supplier is “Steve from Reddit,” diversify. Remember the chip shortage? Don’t be the Steve-dependent startup.
  • Customer Contracts: If your biggest client is your dad’s dental practice, investors will laugh harder than a Shark Tank blooper reel.

4. Tax & Liabilities: “The IRS is Not Your Friend”

Spoiler: The taxman cometh, and he’s not bringing a term sheet.

  • Tax Disputes: Disclose audits unless you want investors to discover your “offshore R&D lab” was really a timeshare in Cancun.
  • Payroll Compliance: Misclassifying employees as “happiness ninjas” won’t save you from fines. Uber learned this the hard way.
  • Outstanding Dues: Owing taxes? Congrats, you’ve just given investors a discount on your valuation.

5. Assets & Ownership: “Do You Actually Own Your Stuff?”

Your startup isn’t a pirate ship. Ownership matters.

  • IP Rights: If your tech is built on a “borrowed” GitHub repo, prepare for drama. Example: Facebook vs. Winklevoss vibes.
  • Digital Assets: If your domain name is StartupNameSucks.com, rebrand before the check clears.
  • Physical Assets: If your “office” is a Starbucks, at least own the laptop you’re working on.

6. Customers & Market Position: “Are You a Unicorn or a Zebra?”

Unicorns are rare. Zebras are real. Investors prefer real.

  • Brand Reputation: If your app has 1-star reviews like “this ruined my marriage,” address it. Juicero thought hype > product; we saw how that ended.
  • Competitor Analysis: If your differentiator is “vibes,” pivot. Example: A startup claiming to “Uberize artisanal pickles” in a market of… regular pickles.
  • Customer Retention: If churn is higher than a crypto bro’s adrenaline, fix it. Blue Apron taught us: retention > vanity metrics.

7. Tech & Data Security: “Is Your Code Held Together by Prayers?”

If “encryption” sounds like a fancy latte, hire a CTO.

  • IT Security: If your password policy is “password123,” expect investors to nope out faster than a Zoom glitch.
  • Proprietary Tech: If your “AI” is just Excel macros, admit it. Example: A startup claiming blockchain integration… for a lemonade stand.
  • Data Policies: If you’re storing customer SSNs in a Google Doc titled “Secrets lol,” delete it. Now.

8. Employees & Team Structure: “Is Your Team a Cult or a Company?”

No, “family” doesn’t justify zero equity or sleep deprivation.

  • Labor Compliance: If your “unlimited PTO” policy means “no PTO,” update it. Tesla’s factory-floor naps aren’t a perk.
  • Key Personnel Risk: If your CTO is also your barista, cross-train someone. Example: A startup that collapsed because the CEO quit to raise alpacas.
  • Employee Satisfaction: If turnover is higher than a TikTok trend, investigate. “Quiet quitting” is louder than you think.

Bonus: Investor Relations – “Don’t Ghost Your Sugar Parents”

  • Communication: Send updates more often than your ex’s passive-aggressive texts.
  • Expectations: If you promised “Mars colonization by 2025,” clarify you meant the candy bar.
  • Reporting: Use graphs. Investors love graphs. Even if they’re just doodles of rockets.

Final Tip: Due Diligence is a Mirror, Not a Mask

Investors aren’t looking for perfection—they’re looking for self-awareness. Disclose the messy bits, laugh at your “NFT pet rock” phase, and prove you’ve learned. After all, the only thing worse than failing due diligence is failing after the wire transfer.

Now go forth, and may your cap table be ever in your favor.

P.S. If your startup survives this checklist, reward yourself. Maybe skip the kombucha socks.

For more snarky startup advice, follow me at [YourHandleHere].

Cheers,

Sim