STORE Investor Framework

Helping entrepeneurs evaluate investors

This post explains why money from one investor is worth more than another, and why it’s imperative to screen investors even more carefully than you screen employees.

To evaluate investors, first define your long term goals and the key milestones over the next 12-24 months, or until the next round of financing. Create criteria for investors based on this exercise much as you create criteria for new hires.

The STORE framework helps in assessing investors by outlining the primary benefits, outside of capital, delivered by investors.

The weighting of criteria varies from financing stage to financing stage since the milestones and challenges change. An early-stage startup, for instance, may need help with validation and choosing the right market whereas a later-stage company may focus more on scalability and global expansion.

STORE:

Strategy. The ability to see around corners and plot high-level direction. Example questions they help answer: what’s the right business model? What are the right verticals and users to pursue? What’s the right distribution model? What market shifts and trends should we monitor?

Trust. Will investors honor their word and commitments? Will they act in your startup’s best interests and not share confidential information, for instance? Will they support the startup even during times of adversity? Do they have a reputation for ousting founders or reneging on negotiated terms?

Operations. The ability to provide guidance on day-to-day tasks and help optimize operations. Example questions: What is the most effective channel for reaching new users? How should we evaluate and manage employees? How should we structure compensation packages for sales people?

Relationships. The ability to broker introductions and secure relationships with people who can help the startup succeed, including employees, customers, journalists, partners, advisors, and future investors.

Expectations. The alignment of their expectations with your startup’s. For instance, are they aiming for a liquidity event within two years? Within five years? What is considered a successful exit: $1 billion, $500 million, $50 million? What accomplishments do they expect within the next 18 months?

Related post: Why money from the right investor is worth more.