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 employees.
A startup faces a multitude of problems between inception and success, spanning from the strategic (e.g., which markets to target, how to fund operations) to the mundane (e.g., how to feed employees, how to clean the office).
Every person a startup compensates, whether in cash or equity, should address one or more of these problems and reduce the gap to success. Janitors are paid to clean offices. Suppliers are paid to produce parts. Investors are no different.
The first step in evaluating investors is to define your long term goals and key milestones over the next 12-24 months, or until the next round of financing. Based on these needs, create a list of “job requirements” for investors like you would for new hires.
The chief requirement investors must meet, of course, is sourcing capital, but great investors do much more and help remove other roadblocks on a startup’s journey.
The STORE framework can help entrepreneurs assess 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.
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 are the critical risks and market trends to 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 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, 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.