Kyle Harrison
frameworks

Investment Frameworks

A curated library of investment frameworks and checklists from leading investors, VCs, and fund managers — covering everything from startup metrics to public market valuation.

A curated library of investment frameworks, checklists, and mental models from leading investors across venture capital and public markets. Organized by source. See also Networked Conviction — Roam + Investing for process notes on how Kyle uses these frameworks.

a16z’s “16 Startup Metrics”

Source

  • Bookings vs. Revenue
  • Recurring Revenue vs. Total Revenue
  • Gross Profit
  • Total Contract Value (TCV) vs. Annual Contract Value (ACV)
  • Life Time Value (LTV)
  • Gross Merchandise Volume (GMV) vs. Revenue
  • Unearned or Deferred Revenue vs. Billings
  • Customer Acquisition Cost (CAC): Blended vs. Paid, Organic vs. Inorganic
  • Active Users (DAU, WAU, MAU)
  • Month-on-Month Growth
  • Churn
  • Burn Rate
  • Downloads
  • Cumulative Charts vs. Growth Metrics
  • Chart Tricks
  • Order of Operations

a16z’s “16 More Startup Metrics”

Source

  • Total Addressable Market (TAM)
  • ARR vs. Annual Run Rate
  • Average Revenue Per User (ARPU)
  • Gross Margins
  • Sell-Through Rates & Inventory Turns
  • Network Effects
  • Virality
  • Economies of Scale
  • Net Promoter Score
  • Cohort Analysis
  • Registered Users
  • Active Users (across social, media, e-commerce)
  • Sources of Traffic
  • Customer Concentration
  • Truncating the Y-Axis
  • Cumulative Charts, Again

a16z’s “16 Key Metrics for the Passion Economy”

Source

  • Conversion of free fans to supporters and subscribers
  • Total creators with sales (cumulative and in a given time frame)
  • Creators who have reached a certain revenue threshold
  • Gross Transaction Value or Gross Subscription Value
  • Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR)
  • Average selling price (ASP)
  • Share and sources of earnings
  • Revenue retention (creators & audience)
  • Fan engagement rate
  • Loyalty and retention of fans
  • Creator retention and churn
  • The Flywheel: Percentage of fans that become creators, creators bringing new creators, fans bringing new fans
  • Creator affinity and value
  • Acquisition costs and channels for creators and users
  • Intra-audience interactions
  • Network effects

Aaron Neil’s “How To Think” Framework

How to Think About a Company

  • Who is target customer (big corps, mom & pops)?
  • What exactly they are disrupting: what the traditional business model is and how this company is changing that? How are they disrupting? Are they working directly against the legacy players or working with the legacy players to complement them?
  • Are they improving efficiency in the industry – how?
  • Pricing?
  • Logistics on exactly how the business works: profit, major costs, KPIs
  • What is the customer experience: what does the business look like from the customer’s POV from initial contact to first sale to retention?
  • Customer retention?
  • Business model in terms of revenue: SaaS, take rate, advertising, etc.?
  • Founder, current CEO (if not founder), key management credentials/performance at past companies
  • Is the company delivering on previous projections? Do future projections make sense?
  • Is this a sustainable business (i.e., can they survive without VC money)?
  • Is this business integral to the customer?
  • What is their value-add?
  • How reliable/predictable is their revenue?
  • Spend time using the product: how do you like it?
  • How can this business scale?
  • Look at ancillary revenue streams: should the business spend more/less time here?
  • Geographical coverage?
  • Vertical vs. horizontal expansion opportunities?
  • Is this business a means to a larger business (e.g., Netflix renting DVDs to get into streaming space)?
  • What is the company doing with new investor capital?
  • Dissect the company’s costs. What exactly is baked into each cost line and how are those going to change as the company grows?
  • What are the primary geographies the company operates in? How penetrated are these? What other geographical markets can the company penetrate?

How to Think About an Industry

  • Competitors?
  • Find metrics companies in the industry are evaluated on. How does this company compare?
  • Traditional business model?
  • Does our company have a competitive advantage?
  • Macro/non-fundamental events headwinds and/or tailwinds
  • Industry growth stage: any proven winners, consolidation, etc.?
  • Addressable market CAGR?
  • Barriers to entry/exit?
  • Is this a winner take all market? Will this company be the winner and therefore a monopoly?

How to Think About Valuation

  • What are the possible outcomes? Bear? Base? Bull?
  • Potential exit opportunities/when? (IPO, strategic private, PE shop, etc.)
  • What are the three main drivers of the financial statements? Focus on those.

Baillie Gifford’s 10 Question Stock Research Framework

Source

Industry Background

  • Is there room to at least double sales over the next 5 years?
  • What happens over ten years and beyond?

Competitive Advantage

  • What is your competitive advantage?
  • Is your business culture clearly differentiated? Is it adaptable?
  • Why do your customers like you? How do you contribute to society?

Financial Strength

  • Are your returns worthwhile?
  • Will they rise or fall?

Management Attitudes

  • How do you deploy capital?

Valuation

  • How could it be worth five times as much, or more?
  • Why doesn’t the market realize this?

Bijan Sabet’s Checklist

  • Are the founders extraordinary?
  • Do I love the product?
  • Is the vision compelling?
  • If I wasn’t a VC, would I want to work for the founders at the startup?

Bill Ackman & Pershing Square Principles

  • Simple
  • Predictable
  • Free cash flow generative
  • Strong profit-growth potential
  • Scarcity value
  • Dominant player
  • Competitive moat
  • Large barriers to entry
  • Earning high returns on capital
  • Limited exposure to extrinsic risks
  • Strong balance sheet
  • No need for capital to survive
  • Excellent management
  • Good governance

Bill Gurley: Effectiveness of an Online Marketplace

Source

  • New Experience vs. The Status Quo
  • Economic Advantage vs. The Status Quo
  • Opportunity for Technology to Add Value
  • Fragmentation of Suppliers
  • Friction of Supplier Sign-Up
  • Size of Market Opportunity
  • Expand the Market
  • Frequency
  • Payment Flow
  • Network Effects

Brian Feroldi’s Investment Checklist & Gauntlet

Source

Checklist

Financials:

  • Financial Resilience: Balance sheet strength that could survive an industry downturn. Score 0–5.
  • Gross margin: >80% = 3 pts. 50–80% = 1–2. Below 50% = 0. Max 3.
  • Return on equity: >20% = 3 pts. 10–20% = 1–2. Below 10% = 0. Max 3.
  • Free cash flow: Positive and growing rapidly = 3. Negative = 0. Max 3.
  • Earnings per share: Positive and growing >15% = 3. Negative = 0. Max 3.

Moat:

  • Network effect: True network effect (like Facebook, not like Western Union). Max 15.
  • Switching costs: Painful in terms of time, cost, or training to leave. Max 15.
  • Durable cost advantage: Scale, physical location, vertical integration, distribution. Max 15.
  • Intangibles: Premium brand, long-lived patent, government license. Max 15.
  • Moat direction: Widening = 5. Stable = 2–3. Weakening = 0. Max 5.

Potential:

  • Optionality: Multiple futures, potential to enter new markets. Max 7.
  • Organic growth runway: Already captured ~1% of market. Max 4.
  • Top dog and first mover in important, emerging industry. Max 3.
  • Operating leverage ahead: Scaling margins. Max 4.

Customers:

  • Acquisition: Word-of-mouth preferred; low CAC. Max 5.
  • Dependence: Recession-proof demand. Max 5.

Company-specific factors:

  • Recurring revenue: Razor/blade, consumables, subscription. Max 5.
  • Pricing power: Can raise prices without losing customers. Max 5.

Management & Culture:

  • Soul in the game: Founder/family or long-tenured CEO. Max 4.
  • Insider ownership: Significant net worth tied to the business. Max 3.
  • Glassdoor ratings: Overall >4, CEO approval >80%, recommend to friend >80%. Max 4.
  • Mission statement: Purpose beyond making money; simple and inspirational. Max 3.

Stock:

  • Performance: Beaten market by 100%+ over 5 years. Max 4.
  • Shareholder friendly actions: Rising dividend, buybacks, debt paydown. Max 3.
  • Consistently beats expectations: Award 1 pt per beat in last 4 quarters. Max 4.

The Gauntlet (deductions)

  • Customer concentration: >20% single customer = -5. Several customers >10% = -2 to -4. No risk = 0.
  • Industry disruption: Facing an Arista = -5. Some risk = -3. No risk = 0.
  • Outside factors: Success depends on commodity prices, interest rates, government, etc. = -3 to -5.
  • Big market loser: Stock lost to market by >100% over 5 years = -5.
  • Growth by acquisition only: = -4. Bolsters organic growth = -2.
  • Binary event: Major legal/FDA ruling could destroy the thesis = -5.
  • Extreme dilution: Share count rising >5% annually from SBC = -4. 3–5% = -2.
  • Complicated financial statements: Can’t understand the financials = -3.
  • Antitrust concerns: So dominant regulators may act = -3.
  • Headquarters: China = -3. Israel = -2. Non-US developed = -1. US = 0.
  • Currency risk: >66% of sales outside US = -2. >33% = -1.

Bruce Berkowitz’s Basic Checklist

  • Can you kill the investment? Is there adult supervision at the company?
  • Is the company essential? Does it depend upon the kindness of strangers?
  • What can the company make? Reasonable profitability for owners?
  • How are owners paid? Distributions?
  • Management — honest in past and present?
  • Does accounting reflect reality?
  • Does the balance sheet match up with the income statement?
  • Catalysts — Buybacks? Misunderstood? Is enterprise having a big problem that is fixable?
  • Are there irrational fears of current headwinds?
  • Does the business have pricing power or unit growth?
  • Can you hold the investment for a long time & does it improve portfolio performance?

Charlie Munger’s Checklist

See also Poor Charlie’s Almanack

  • Can you understand the business? Is it in your circle of competence? (Avoid industries where you know little — e.g. technology, biotech)
  • Does the business have a moat? Does it have a durable competitive advantage? (Avoid perfectly competitive and high fixed cost industries)
  • Does it have managers who behave as owners and are wise capital allocators?
  • Do insiders own their own stock and are they buying back shares?
  • Does the company have a lot of debt? Any long list of numbers multiplied by zero is always zero.

Chase Coleman at Tiger Global Management on Managing an Investment Portfolio

  • Maintain a simple investment philosophy and adhere to it at all times. At Tiger Global, we seek to buy high-quality companies at attractive multiples of future free cash flow run by talented, shareholder-oriented management teams. Occasionally, we will purchase shares in a mediocre business trading at a steep discount to intrinsic value.
  • The best risk management occurs at the individual idea level, assuming that the overall portfolio is well-hedged, not over-leveraged, and reasonably diversified. Considerations:
    • Counterparty exposure is extremely important.
    • Managing a portfolio with negative net exposure can be risky.
    • Asset-based exposure analysis at the portfolio level can be helpful.
    • Concentration in sectors with significant political, interest rate, or commodity price risk requires careful forethought.
    • Be patient and resist the temptation to shorten your time horizon. “When everyone is compressing their time horizon, you should lengthen yours.” — John Griffin
  • Valuations matter, a lot. Even the worst company in the world is attractive at some price; the best should be sold at the wrong valuation.
  • Maintain a healthy level of organizational paranoia. Question your assumptions, understand the risks, be willing to transition when you “just don’t know.” If and when you believe you are wrong, do not incrementalize — move on quickly.
  • Be aggressive when you find highly asymmetric risk/reward opportunities. There is no better feeling than being early, being big, and being right.

Coatue Framework

  • Team
  • TAM
  • Traction
  • (+) Trend

Daegwon Chae, Partner at Bond

  • Is this a vertical that will experience 30%+ CAGR over time?
  • Is this a growth stage investment that has the potential to generate venture-scale returns (e.g., generational business)?
  • Is this business highly cash-intensive? If so, do they have high LTV and short payback periods?
  • Is this a controversial investment among your team? Consensus is priced in.

David Einhorn’s Checklist

  • What are the economics of the business?
  • How do the economics compare to the reported earnings?
  • How are the interests of the decision makers aligned with investors?

Don Valentine’s Original Question

  • Why should I care about this?

DST Global 3 Core Elements

  • Team
  • TAM
  • Traction

Future Ventures Key Questions

  • Is this company the first of their kind?
  • Are they competing or are they creating a category?

G Squared Land and Expand

  • Are customers highly engaged? (Low churn for SaaS; high MAU % for consumer)
  • Can the company monetize its users over time? (High net dollar retention; rising ARPU)
  • Are unit economics positive? (LTV:CAC of ~3x or greater)
  • Is there a path to profitability within 3 years of investing?
  • Does the company have a strong management team?
  • Have they brought on solid investor syndicates and board members?
  • Is the business capital efficient?
  • Are gross margins high? Do they have ability to improve over time?
  • Does the business have strong network effects?
  • Does the business have recurring revenue?
  • Does the business have high switching costs?
  • Does the business have economies of scale?
  • Does the business have a trusted brand / superior product?
  • Is the TAM large and growing?
  • Does the business have a competitive moat and breaking away as a category leader?
  • Are there multiple competitors who are also growing and venture-backed?
  • Is there a 2–3x base case return within 3 years with a downside case that still yields a full return of capital?

In Practise Primary Research Checklist (For Interviews)

Source

Pre-interview

Business Analysis

  • Do I understand how this business fits into the wider value chain? Who has power in the value chain?
  • Have I written down in simple sentences what I believe are the core drivers of intrinsic value? What else do I think is important?
  • Do I understand what I don’t know?
  • What information and metrics are reported? What is missing from the company filings?
  • Do I understand the economics of one unit? CLTV? Revenue, fixed and variable costs per unit?
  • Do I understand the bull and bear arguments for the company?

Executive Analysis

  • Do I know exactly how the executive spent their day-to-day at the company?
  • What were their key responsibilities and who did they report to?
  • What exactly is the executive’s circle of competence?
  • How did they rise through the ranks of the business?
  • What kind of operator is this executive? Do they understand the company from a shareholder’s perspective?
  • What is the executive’s worldview?
  • On what terms is the executive with current management? Still a shareholder? Fired?

Interview

Building trust

  • Have I sent the executive questions in advance?
  • Does the executive understand who I am and what I’m trying to achieve?
  • How do I build trust and respect with this particular executive?
  • Which questions will the executive be least comfortable addressing and why?
  • How do I sequence the questions most effectively?
  • How could I get a sense of the integrity of the executive’s opinions?

Asking questions

  • Why does this question really matter?
  • What assumptions am I making by asking this question?
  • What is the most effective line of questioning? Open-ended, indirect, direct, or a “dumb” question?
  • Am I pushing my own agenda with this question?
  • Is there a simpler way to ask the question?
  • How am I structuring the question? Is it closed? How could it be more open?
  • If the executive answers X to Y question, what are the second and third-order effects of X?

Post-interview

Synthesis

  • How does my assumptions of the core drivers align with what the executive thinks really matters?
  • What new information or facts about the company did I learn?
  • What opinions did the executive have about the core drivers? How do these compare with consensus?
  • How could the biases of the executive influence their view? How should I handicap their opinions?

Further research

  • Do I know what is important and not important?
  • How do I gather insight on what I know is important but I still don’t know?
  • Am I looking in the right place for insight on the key drivers?
  • Which type of person could sense-check or provide a different perspective?

Jared Sleeper’s “Getting Up To Speed” Process

  • Review past notes
  • Understand pricing
  • Identify top competitors
  • Read latest transcript Q&A
  • Check Glassdoor
  • Check G2Crowd
  • Check Google Trends
  • Other unique relevant data?
  • Review guidance vs. performance
  • Check LinkedIn hiring
  • Chat with IR
  • Make sure all the given data is in a model
  • Tune model row by row
  • Identify key drivers for revenue modeling
  • TAM Analysis
  • Write down key questions
  • Key people and impressions
  • Trading dynamics — share structure/lock-up, etc.
  • What would be a unique way to get familiar / deep here?
  • Watch a demo and/or demo the product

Joe Coster’s Final Decision Checklist

Source

  • Are you tired?
  • Did you make this investment decision while the market was closed, so that current price moves aren’t impacting your judgment?
  • Have you done enough work, and are you sure this is within your circle of competence?
  • Is the balance sheet conservative to allow the company to endure even the most difficult economic environments?
  • Is the management team comprised of the kind of people you want to partner with, and are their interests clearly aligned with yours?
  • Is this a good business?
  • Do you have downside protection?
  • Do you understand price vs. value?
  • Is this business almost certain to be making more money 10 years from now?
  • Am I viewing this as a business and not just a stock?
  • Am I sizing the position appropriately?
  • No FOMO, No Sunk Costs, and No Acting Out of Boredom.

Joel Greenblatt’s Checklist

  • What are you paying? (EBIT/EV)
  • What are you getting? (Normalized EBIT / (NWC + Net Equipment))
  • What is normalized EBIT in three years?

John Rotonti’s Investing Checklist

Source

  • Does the business have a strong balance sheet, preferably with net cash?
  • Can the business generate organic revenue growth powered by a large market opportunity and/or long-term tailwinds?
  • Does the business have rising or stable margins, with particular emphasis on gross margins and NOPAT margins?
  • Can the business generate high (or increasing) ROIC and growing earnings and free cash flow?
  • Is the business led by an exceptional CEO and quality leadership team?
  • Does the business have recurring revenue and/or pricing power?
  • Does the company have a medium (or lower) risk profile?
  • Is the business executing well (experiencing strong business momentum)?
  • Is the company driven by a mission beyond maximizing profits for shareholders?
  • Does the business have multi-bagger potential?

Jonathan Tepper’s Checklist

  • Is the business simple and understandable?
  • Does the business have a consistent operating history?
  • Does the business have favorable long-term prospects?
  • Is the business simple, predictable, free-cash-flow generative, resilient and sustainable?
  • Does the business have strong profit-growth opportunities and/or scarcity value?
  • Does the business have a moat around it?
  • Is it a high-quality business that can’t blow up and should grow in value over time?
  • Is there a high profit margin (operational margin of safety)?
  • Does this have any of the following characteristics of a great business?
    • They are scarce
    • Clear and long runway of growth
    • Limited competition
    • Not capital or labor intensive
    • Minimal government involvement
    • A major plus to have a great manager
  • Who is the CEO and board? Do they have a good track record?
  • Is the management rational with its capital?
  • Has management made dumb acquisitions or issued shares below intrinsic value?
  • Do insiders own their own stock and are they buying back shares?
  • Is the focus on Return On Equity?
  • What is the rate of “owner earnings”?
  • What is the value of the business? Can it be purchased at a significant discount to its value?
  • Does the company have a lot of debt? Any long list of numbers multiplied by zero is always zero.

Lead Edge Capital 8 Criteria

  • Are you growing $10M+ in revenue?
  • Are you growing your revenue at 50% or more a year?
  • Do you have 70%+ gross margins?
  • Do you have a recurring business?
  • What is your retention? Do you have 90%+ gross retention?
  • Are you profitable or break even?
  • Do you have a diversified customer base?
  • How efficient are you with your capital? (“The world is littered with $25M software companies that have burned $60M to get there.”)

Lenny Rachitsky’s How to Kickstart and Scale a Marketplace Business

Source

Phase 1: Crack the chicken-and-egg problem

  • Constrain the marketplace
  • Decide which side of the marketplace to concentrate on
  • Drive initial supply
  • Drive initial demand

Phase 2: Scale your marketplace

  • Determine if you are supply or demand constrained
  • Scale growth levers
  • Maintain quality
  • What would you have done differently?

Phase 3: Evolve your marketplace

  • Move to a managed marketplace
  • Add new business lines

Lou Simpson’s Checklist

  • Does management have a substantial stake in the stock of the company?
  • Is management straightforward in dealings with the owners?
  • Is management willing to divest unprofitable operations?
  • Does management use excess cash to repurchase shares?

Margin of Safety Framework

  • How can the company be killed?
  • What are the biggest threats and weaknesses?
  • Does the company have a “moat” protecting its business?

Mark Vukich’s Prompting Questions Framework

General Business

  • Is this a good business?
  • What are the key success factors to superior performance in this industry?
  • Define the market opportunity. How do competitive products address it?
  • What are the barriers to entry (“moats”)?
  • What is the relative power of customers, suppliers, competitors, regulators?
  • Who controls industry pricing? Does the company/sector have pricing power?
  • How much can a good company differentiate itself from a bad one in this industry?
  • Do you understand this business? Describe it to a ten year old.

Evaluating Management

  • Is the company’s leadership honest? Do they demonstrate integrity?
  • Is there a lot of employee turnover? How are employees treated?
  • What are the employees’ incentives?
  • Is the executive leadership incentivized for the long-term?
  • What is their background, and what do their former colleagues say about them?
  • How are they compensated? Are their interests aligned with shareholders?
  • Have they been good at allocating capital?
  • Are they buying or selling stock?

Business Model

  • What is the selling model: razor/blades? services? one-off contracts?
  • What are the economics of the base business unit vs. competitors?
  • Why is the company good (or bad) at what they do? Can they sustain it?
  • Is this company growing by acquisition? How sustainable is that?
  • Be able to easily describe the entire sales process — from order to fulfillment.

Company Culture

  • Is this a great company? Is it built to last?
  • Can you imagine holding stock in this company for twenty years?
  • If you had unlimited capital, how would you feel about your chances of competing against this company?
  • Compare to a weak competitor. What is the difference and why?

Financial

  • What are the company’s capital requirements and cash flow characteristics?
  • How visible are earnings quarter-to-quarter and year-to-year?
  • Is this a fixed or variable cost business? How much cost leverage?
  • Do earnings grow as a function of unit sales growth, price increases, or margin improvement?

Valuation

  • Enterprise Value/EBITDA
  • What are the company’s growth rates in terms of earnings, EBITDA, and FCF?
  • What has to go right, and where is the most chance for surprise?
  • What are the relevant precedent transactions?

Risks

  • What are the big unknowns? How much can the company control/influence these risks?
  • What could cause this investment to be a total disaster? How bad could it be?
  • What good news and bad news will affect the company in the coming year?

Michael Shearn’s “Investment Checklist”

Basics

  • Do I want to learn more about this business?
  • How would you evaluate this business if you became CEO?
  • Describe how the business operates. How does it make money?
  • How has it changed over time? What countries does it operate in?

Customer

  • Who is the core customer? What is customer concentration?
  • Is it an easy or hard sell? What is the customer retention rate?
  • Is the business customer-oriented? What pain is alleviated for the customer?
  • Is the customer dependent on the business? If it disappeared, would customers care?

Business

  • Sustainable competitive advantage? Source? Pricing power? Good or bad industry?
  • How has the industry evolved? What is the competitive landscape?
  • How intense is the competition? Good supplier relationship?

Financials

  • What are the business fundamentals? What metrics matter most?
  • What are the key risks? How does inflation affect the business?
  • Is the balance sheet strong or weak? What is ROIC?

Cash Flow

  • Accounting standards: conservative or liberal?
  • Is revenue recurring? Cyclical, countercyclical, or recession-resistant?
  • Operating leverage? Working capital affect cash flow? High or low capex?

Management

  • What type of manager is the CEO? A lion or a hyena?
  • How did the CEO rise to lead the business?
  • How are senior managers compensated? Have they been buying or selling the stock?
  • Does the CEO consider all stakeholders? Value employees? Hire well?
  • Cutting unnecessary costs? Disciplined capital-allocation decisions? Buy back stock?
  • Does the CEO love money or love the business? Have integrity? Good communicator?
  • Is the CEO an independent thinker? Self-promoting?

Growth Potential

  • Organic or M&A? What is the motivation to grow?
  • Has historical growth been profitable? Can it continue?
  • Favorable growth prospects? Growing too quickly or at a steady pace?

M&A

  • How does management make M&A decisions? Have past acquisitions been successful?

Patrick Gregory’s Investment Checklist

Source

  • Is this idea within my circle of competence?
  • What are the 1–3 main things that will drive the business, and what data can I use to track them?
  • What is the secular growth potential? Consider the size and growth of end markets.
  • What defines the quality of the business (brand awareness, customer loyalty, pricing control, cost advantages)?
  • Is there some element of defensiveness (brand strength, IP, regulatory environment, scale, switching costs, network effect)?
  • How capable is management? Do they have a commitment to enhancing shareholder value?
  • What is management doing to position the company for the future?
  • Does the company earn high ROIC?
  • Does the company have a long runway of reinvestment prospects and a moat to protect returns?
  • Is it a capital intensive business?
  • Is the balance sheet structured to allow the company to take advantage of unforeseen opportunities?
  • Are there any off-balance sheet liabilities?
  • Are there any potentially disruptive technologies?
  • Is it trading at a good price? What is the downside to your worst case scenario? Is there a case for a 26% IRR (double in 3 years)?
  • What are the catalysts for value creation?
  • How long do you anticipate holding the stock?
  • If you ultimately have to get out, what’s the likely reason you were wrong?

Phil Fisher’s 15 Questions

  • Does the company have products/services with sufficient market potential to make possible a sizable increase in sales for at least several years?
  • Does the management have a determination to continue to develop products or processes that will further increase sales when current product lines have been exploited?
  • How effective are the company’s R&D efforts in relation to its size?
  • Does the company have an above-average sales organization?
  • Does the company have a worthwhile profit margin? What is the company doing to maintain or improve profit margins?
  • Does the company have outstanding labor and personnel relations?
  • Does the company have outstanding executive relations?
  • Does the company have depth to its management?
  • How good are the company’s cost analysis and accounting controls?
  • Are there other aspects of the business, somewhat peculiar to the industry, which will give the investor important clues?
  • Does the company have a short range or long range outlook in regards to profits?
  • In the foreseeable future, will growth require sufficient equity financing to largely cancel the benefit of anticipated growth?
  • Does the management talk freely to investors about its affairs when things are going well but “clam up” when troubles occur?
  • Does the company have a management of unquestionable integrity?

Marc Andreessen (pmarca)‘s “Layers of Risk for a High-Tech Startup”

Source

  • Founder risk: Does the startup have the right founding team? (Great technologist + person who can run the company)
  • Market risk: Is there a market for the product? Will anyone want it? Will they pay? How much?
  • Competition risk: Are there too many other startups doing this? Is this startup sufficiently differentiated?
  • Timing risk: Is it too early? Is it too late?
  • Financing risk: How many additional rounds will be required? What will the dollar total be?
  • Marketing risk: Will this startup be able to cut through the noise? Do the economics of customer acquisition work?
  • Distribution risk: Does this startup need certain distribution partners to succeed? Will it be able to get them?
  • Technology risk: Can the product be built? Does it involve fundamental breakthroughs that need to happen?
  • Product risk: Even assuming the product can in theory be built, can this team build it?
  • Hiring risk: What positions does the startup need to hire for to execute its plan?
  • Location risk: Where is the startup located? Can it hire the right talent?

Porter’s Five Forces

  • Threat of new entrants
  • Threat of substitute products or services
  • Bargaining power of customers (buyers)
  • Bargaining power of suppliers
  • Intensity of competitive rivalry

Porter’s Economic Franchise

  • Is it needed or desired?
  • Is it thought by its customers to have no clear substitute?
  • Is it not subject to price regulation?

Richard Chu’s SaaS Investment Checklist

  • Category leader (dominates a niche — see Gartner/Forrester)
  • Recurring revenue (high visibility SaaS model)
  • Large and growing TAM vs. market share (>$2B market cap, potential to 2–3x over 3 years)
  • Defensible moat (network effects, branding, IP, partnerships, distribution channels, switching costs, economies of scale, barriers to entry)
  • High gross margins (>70%) and organic revenue growth (>40%)
  • High DBNER (>120%) and gross retention rate (>90%)
  • Progress towards profitability (improving non-GAAP gross and operating margins)
  • Focused, mission-driven company culture (4/5+ Glassdoor rating?)
  • Founder CEO, experienced management, high insider ownership
  • Rapid customer growth with fast sales cycles (preferably bottom-up/land and expand)
  • Diversified customer base (strong pricing power, few dependencies)
  • Optionality and rapid product development (creating a platform/ecosystem?)
  • User satisfaction/mindshare (external job postings, reviews, conferences)
  • Valuation (sustainable multiple with opportunity for expansion?)
  • Geographic/industry familiarity
  • Technical indicators (healthy relative strength, accumulation/distribution, moving averages trending up)

Ryan Reeve’s “Business Resilience Checklist”

Business Resilience

  • Low sales and marketing expenses (word of mouth or strong DTC distribution)
  • Vertically integrated control of the value chain
  • Low customer or supplier concentration
  • Do the products and services help customers cut costs?
  • How long does it take for the customer to figure out the value proposition?

Financial Strength

  • Lots of cash
  • Free cash flow positive
  • Strong growth (shows demand for the product)

Management

  • Long term vision
  • Rate of innovation
  • Skin in the game
  • Founder?
  • Degree of customer obsession
  • Mount Rushmore leaders (h/t Michael Shearn)
  • Rarely talk about selling, just problem solving

Ryan Reeve’s Investment Checklist

Disqualifiers

  • Am I interested in learning more about this company?

Important

  • Is it in my circle of competence? (Do I know the business model, the industry, and two or three very important metrics?)
  • Clear thesis: why do I think this company will be a good stock?

Moat

  • Why is the company better than all the competition? (Leader, business momentum, competitive advantages)
  • How do you think about future-proofing and optionality?
  • What is the value proposition? How much value are they providing?
  • What is the culture of the company like? How do they treat employees? (Check Glassdoor)

Management

  • Insider ownership and other smart investors?
  • Founder led?
  • Culture of innovation? Long term view? Recent new products?

Financials

  • Revenue growth, margin expansion, operating cash flow (FCF margins), ROIC
  • Capital structure, too much debt? Diluting a lot?
  • Total addressable market; how well do you know the industry?

Biases

  • Do I like this just because I have spent a lot of time researching it?
  • Do I like it just because it is down a lot from a high?
  • Is this the absolute best choice I can make or am I di-worsifying?
  • Am I seeking to find reasons to like this company rather than just letting the facts speak?

Valuation

  • How confident am I in the assumption of getting a 5-year 20% CAGR?

Allocation

  • What is my gut-level conviction and the upside potential?

Pre-Mortem

  • If this turns out to be a bad investment, what will be the reason?

Sam Altman’s “How To Invest In Startups”

Source

  • Identify who is great before they are
  • Is the person improving at a noticeable rate?
  • Would you work for the founder?
  • Can you imagine the founder taking over the industry?
  • Is the founder fast-moving and certain to be successful?
  • Are the founders scrappy and formidable at the same time; mission-oriented, obsessed with their companies, relentless, and determined; extremely smart; decisive, fast-moving, and willful; courageous, high-conviction, and willing to be misunderstood; strong communicators and infectious evangelists; and capable of becoming tough and ambitious?
  • Can costs be low and cycles fast?
  • Are network effects involved?
  • Does the industry have a rapid rate of change?
  • What can be the growth rate and eventual size of the market?
  • Is this a real trend? Do the few users use the platform a lot and love it?
  • Is it riding the wave of a new, important and rapidly growing platform?
  • Is the product so good people spontaneously tell their friends about it?
  • Is the product fundamentally new or 10x better?
  • Does the mission attract talented people around the startup?
  • Are you being seduced by a good idea pushed by bad founders?
  • Are you chasing this investment because other investors like it?

Seilern’s 10 Golden Indicators

Source

  • Scalable Business
  • Superior Industry Growth
  • Consistent Industry Leadership
  • Sustainable Competitive Advantage
  • Strong Organic Growth
  • Wide Geographic & Customer Diversification
  • Asset Light & Profitable
  • Solid Financial Position
  • Transparent Accounts
  • Excellent Management & Corporate Governance

Sequoia’s Original Checklist

  • Must be in a very large market
  • Must be in NorCal
  • Must be an advanced technology
  • Must have high gross margin ability
  • Must have the potential for Sequoia to make $100M on the single investment
  • Must be positively responsive to our active participation

Tiger Management Research Framework

Industry Study

  • Is this a good business? What are the key success factors to superior performance in this industry?
  • Define the market opportunity. How do competitive products address it?
  • What are the barriers to entry (“moats”)?
  • What is the relative power of customers, suppliers, competitors, regulators?
  • Who controls industry pricing? Does the company/sector have pricing power?
  • How much can a good company differentiate itself from a bad one in this industry?
  • Describe it to a ten year old.

Business Model

  • What is the selling model: razor/blades? services? one-off contracts?
  • What are the economics of the base business unit vs. competitors?
  • Why is the company good (or bad) at what they do? Can they sustain it?
  • Is this company growing by acquisition? How sustainable is that?
  • Describe the entire sales process — from order to fulfillment.

Management

  • What is their background, and what do former colleagues, investors, classmates say about them?
  • Have they been successful in the past? (Very important)
  • How are they compensated? Are their interests aligned with shareholders?
  • Have they been good at allocating capital?
  • Are they buying or selling stock? How much as a percentage of their holdings, and why?

Company/Cultural Issues

  • Is this a great company? Is it built to last? What could change this assessment?
  • Can you imagine holding stock in this company for twenty years?
  • If you had unlimited capital, how would you feel about your chances of competing against this company?
  • Compare to a weak competitor in the same industry. What is the difference and why?

Balance Sheet

  • What is the company’s capital structure and how does it compare to peers?
  • What are the trends in inventory turns, days payable/receivable, and working capital?
  • What are its coverage ratios on interest payments?

Cash Flow

  • What are the company’s capital requirements and cash flow characteristics?
  • How is the company choosing to invest its capital? CapEx? Buybacks? Acquisitions?
  • Does the company need to access the capital markets? How soon/often?

Earnings/Profitability

  • How visible are earnings quarter-to-quarter and year-to-year?
  • Is this a fixed or variable cost business? How much cost leverage?
  • Do earnings grow as a function of unit sales growth, price increases, or margin improvement?

Valuation

  • Market Value/Earnings, Enterprise Value/EBITDA, FCF Yield, Market Value/Sales
  • What are consensus earnings estimates vs. your own expectations?
  • What are key leverage points in our own and the street’s earnings models?
  • What has to go right, and where is most chance for surprise?
  • Are accounting policies conservative and in line with peers?

Risks

  • What are the big unknowns? How much can the company control/influence these risks?
  • What could cause this investment to be a total disaster? How bad could it be?

Other (Timeline/timing issues — DO A TIMELINE!)

  • What are the catalysts for the company’s proper valuation to be realized?
  • What good news and bad news will affect the company in the coming year?
  • Who owns the stock? Momentum funds? Big mutuals? Hedge funds?
  • How difficult is it to build a significant position (float, volume)?
  • Draw a timeline of expected events and dates. What might go wrong and when?

Tom Murphy’s Checklist

  • Scarcity value
  • Clear and long runway of growth
  • Limited competition
  • Not capital or labor intensive
  • Minimal government involvement
  • A major plus to have a great manager

Warren Buffett’s Checklist

  • Is the business simple and understandable?
  • Does the business have a consistent operating history?
  • Does the business have favorable long-term prospects?
  • Is management rational with its capital?
  • Is management candid with the shareholders?
  • Does management resist the “institutional imperative”? (Do they avoid groupthink?)
  • Is the focus return on equity?
  • What is the rate of “owner earnings”? (FCF over a defined period)
  • Is there a high profit margin?
  • Has the company created $1 of market value for every $1 retained?
  • Financial analysis: Focus on return on equity, free cash flow, high profit margins, and how good the company will be in 10 years vs. competition.
  • What is the value of the business?
  • Can the company be purchased at a significant discount to its value?

Miscellaneous / Relative Value

  • Is the product 10x cheaper or better than what exists?
  • Is this an aspirin or a vitamin?
  • What business metrics do they track on their dashboard?
  • How did you come up with those metrics? Why are they more important than others?
  • Where could this investment go wrong?

Verbatim source notes — restored from Roam, 2026-09-21

  • What __opinions __did the executive have about the core drivers? How do these opinions compare with consensus?
  • Does the company create an equal amount of (or even more) value for its key stakeholders as it does for itself? In other words, does it try to pursue shared value creation and win-win outcomes?
  • How does the executive’s role at X company align with their previous and current roles? Are the roles in a similar industry or function? If not, why?
  • Defensible moat (network effects, branding, IP, partnerships, distribution channels, architecture, switching costs, economies of scale, barriers to entry, talent, etc.)
  • Do I understand the competitive environment, market-share trends, the rationality (or lack thereof) of pricing in the industry?
  • Performance: I’m a believer that winners keep on winning. I want to see that the stock has beaten the market over the last 5 years or at least since its IPO. Outperformance by 50% earns partial credit and by 100% earns full credit. Underperforming or matching the market is a 0 or 1. Max score - 4.
  • If you ultimately have to get out of the stock, what’s the likely reason you were wrong?
  • Binary event: Would a big legal ruling and/or government decision down the road ruin the investment thesis? (FDA rejection, patent invalidation). -5.
  • Does the business have commodity exposure?
  • Are the barriers to success high?
  • Does management base its capital allocation decisions on ROIC (or a similar return-based metric)?
  • Dependence: I want to own companies with products/services that are in demand in good times and bad. If sales will fall drastically during a recession then 0 points. A modest fall, stable, or modest growth during tough times = 2 to 4 points. A truly recession-proof business = 5 points. Max score - 5.
  • Is the CEO focused on building long-term profitable growth over short-term earnings per share (EPS)?
  • Which questions do I think the executive will be least comfortable addressing and why?
  • What percentage of the debt is fixed-rate versus a variable rate?
  • Switching costs: If it would be incredibly painful in terms of time, cost, money, or training to stop using a product/service then I’ll award the full 15 points. Less if it would be painful but not as disruptive. Score range is 0 to 15. Max score - 15.
  • Regarding the company’s sales model, how visible are earnings quarter-to-quarter, and year-to-year?
  • Which type of person could sense-check or provide a different perspective to the executive?
  • Am I looking in the right place for insight on the key drivers? Would a supplier, customer, or else be more interesting for insight?
  • Do you understand this business? Test yourself and describe it to a ten year old.
  • What is the source of the company’s recurring revenue? Is that source long-term contracts? If so, how long are the contracts? Is that source subscription services? Is that source a consumable (use-once-and-dispose item)? Is it a daily habit or pleasure? Is it a mission-critical product or service?
  • Is the business overly exposed to customer or supplier concentration?
  • Durable cost advantage: Having some durable cost advantage over rivals/new entrants (extreme scale, a physical location, vertical integration, effective distribution). Score range is 0 to 15. Max score - 15.
  • Is there a lack of data privacy at the business?
  • Is the CEO someone I’d want to work for?
  • Issue guidance?
  • Company/Cultural Issues (VAR)
  • In the foreseeable future, will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders’ benefit from this anticipated growth?
  • What is the executive’s worldview? Through which lens does the executive look at the business and industry?
  • Is the business executing well (is it experiencing strong business momentum)?
  • Has the CEO created and nurtured a healthy and enduring corporate culture?
  • Soul in the game: I want a manager that cares more about the long-term health of the businesses than the short-term. Founders and/or family-run business environments qualify and get maximum credit. CEOs who have spent a decade or more at a company get partial credit. Brand new hired gun CEO = 0. Max score - 4.
  • Currency risk: If >66% of sales are outside U.S. then it is a -2. >33% then a -1. Otherwise it is a 0.
  • Have I sent the executive questions and required materials in advance to prepare for the interview?
  • Does the business have poor earnings quality with red flags?
  • Does the company create joy for its customers?
  • Is it recruiting and retaining top talent?
  • Is there a brand or reputational risk?
  • Are the company’s debt and net debt levels increasing or decreasing?
  • What is the secular growth potential for company? Consider the size and growth of its end markets.
  • How should I handicap the opinions of the executive after considering their biases?
  • Is there a potential for disruption or obsolescence?
  • Is the business operating in an industry with burdensome regulation?
  • How can the speaker answer this question? What would be an effective follow up? Do I know an effective counterpoint to a potential answer?
  • Why is the company better than all the other competition? (leader, business momentum, competitive advantages)
  • Is the company investing in building new moats over time?
  • Do the company’s business decisions, products/services, and actions align with the mission?
  • Does it have a long runway of reinvestment prospects? Does it have a moat that protect returns on this projects from competition?
  • Organic growth runway: I want to own businesses with lots of room for organic growth expansion. Ideally, they would have already captured 1% of their estimated market size. If they already own the market (like Apple does with iPhone) then organic revenue growth potential = GDP or less, so they score 0 points. 2x or 3x GDP = 2, 3, or 4 points. 15%+ organic revenue growth potential for years to come up = 4 points. Max score - 4.
  • Is there some element of defensiveness in the business model (e.g., brand strength, intellectual property, regulatory environment, scale, switching costs, network effect)?
  • What are the size of pension obligations and operating leases?
  • How do competitive products address this opportunity?
  • Is there a lack of succession planning, especially when the business is run by the aforementioned first-ballot hall of fame CEO?
  • What long-term secular themes are powering the company’s growth?
  • Free cash flow positive (doesn’t have to be crazy amounts of FCF)
  • Does the CEO have high inside ownership of the company?
  • What opinions or views do I need to sense-check?
  • CEO good communicator?
  • If biz disappeared, would customers care?
  • Does the management have a determination to continue to develop products or processes that will further increase sales when the growth potential of current product lines has largely been exploited?
  • What is the company’s growth rates in terms of earnings, EBITDA, and FCF?
  • Is it winning recognition for having the best product or service or being the best place to work?
  • How did CEO rise to lead the business?
  • What are the economics of the base business unit? How does it stack up against competitors?
  • Is the business overly focused on short-term earnings and underinvesting in R&D and other important areas to maintain long-term adaptability?
  • How could the biases of the executive influence their view? Do they have a certain worldview that distorts their answers?
  • Is the CEO compassionate, capable, candid, and committed?
  • Are there other aspects of the business, somewhat peculiar to the industry, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
  • How often does the company increase prices and by how much?
  • Does the executive understand who I am? Have I been clear about what I’m trying to achieve?
  • Is it in my circle of competence? (do I know the business model and the industry + two or three very important metrics?)
  • What kind of operator is this executive? Does the executive understand the company from a shareholder’s perspective or is their understanding limited to their specific role within the company?
  • Define the market opportunity. How do competitive products address this opportunity?
  • CEO considers all stakeholders?
  • Valuation (sustainable multiple w/opportunity for expansion?)
  • What the relevant precedent transactions?
  • Outside factors: If a company’s success depends on strong commodity prices, interest rates, government spending, a strong economy, a high stock price, or any factor that is not within the company’s control its a -5, -4, or -3. Otherwise its a 0.
  • Customer concentration: High customer concentration increases business fragility by a lot. If the loss of one customer could hinder growth then the business is much riskier than a company that boasts thousands of paying customers. If a single company makes up >20% of sales/accounts receivable is a -5. Few/one customer greater than 10% — even if it is a distributor — is a -4, —3, or -2. No concentration risk = 0.
  • What is the company doing to operate more efficiently and effectively? Remember, growth can both create and destroy value.
  • What is the return on invested capital for the business?
  • Are customers highly engaged? (Demonstrated by low churn (for SaaS companies) or high monthly active user percentage of total users (for consumer companies))
  • Complicated financial statements: I couldn’t understand Solar City’s financials when they were public. I struggle to understand some banks’ financial now (do you really think you understand what is going on at Wells Fargo, Citi Group, or JP Morgan?) If it is overly complicated, you get a deduction of -3. Otherwise its a 0.
  • Is the company investing to protect its moat? (Most companies don’t have moats and those that do often have declining legacy or shrinking moats, but the rare few have wide and sustainable moats).
  • Consistently beats expectations: The best companies manage Wall Street’s expectations well and consistently beat them - period. This drives stock performance and multiple expansion. I’ll look at the last 4 quarters and award 1 point for each time the beat by a lot, half a point if it is a small beat, 0 points if they missed. Max score - 4.
  • Does the company/sector have any pricing power?
  • Free cash flow: I want to reward companies that are free cash flow positive and growing. Negative FCF = automatic 0. Positive but stable and/or fluctuating FCF = 1 or a 2. Positive and growing rapidly = 3. Maximum points - 3.
  • What is the company’s credit rating?
  • How do I sequence the questions most effectively to make the executive comfortable?
  • Is biz customer-oriented?
  • Is the business cyclical and capital intensive or does it sell products with short lifecycles?
  • Does the business have deteriorating vital signs (rising debt and net debt, declining revenue, or ROIC that is falling for the wrong reasons)?
  • Does the company have the products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?
  • Is it winning new contracts?
  • How am I structuring the question? Framing? Is it closed? How could it be more open?
  • Is it taking market share from competitors?
  • Do insiders own their own stock and are they buying back shares? Does management use excess cash to repurchase shares?
  • Is it successful in integrating any acquisitions?
  • Optionality: I want companies that have multiple futures and expand to new markets. This can create a ton of value for shareholders over time (See Apple, Tesla, Netflix, Disney) No optionality that I can see = 0 points. Some optionality within their current industry = 3 points or 5 points. The potential (or recent history) for the company to enter a whole new business that is unrelated to where they currently do not operate = 7 points. (Examples include Amazon with AWS or Tesla with Powerwall). Max score - 7.
  • Pmarca’s “What are the layers of risk for a high-tech startup?”
  • Bruce Berkowitz’s Basic Checklist for Investing
  • Can the business generate high (or increasing) returns on invested capital (ROIC) and growing earnings and free cash flow (FCF)? Strong profitability and free cash generation is another main source of optionality.
  • Does the management talk freely to investors about its affairs when things are going well but “clam up” when troubles and disappointments occur?
  • Are its margins and returns on invested capital rising?
  • Does the company have a fixed-cost or variable-cost business model?
  • Is management compensation based on ROIC (or a similar return-based metric) or FCF?
  • Are their accounting policies conservative and in line with their peers?
  • High or low capital-expenditures?
  • Does the company take a stakeholder-first approach to value creation by understanding that, in order for the shareholders to do well in the long term, the business must first treat its employees, customers, suppliers, community, and the planet well?
  • Does the business have defensible competitive advantages?
  • Is this business almost certain to be making more money 10 years from now, and can it increase its long-term value in a tough economic environment (e.g. by buying stock, taking business from weaker competitors, treating weaker customers and suppliers well in order to build long-term trust, etc.)?
  • Do management’s language and writings constantly refer to metrics such as profitable growth, ROIC, and FCF?
  • CEO improve day-to-day operations?
  • What are the key success factors to superior performance in this industry? (Value Added Research “VAR”)
  • CEO hires well?
  • Have the managers been buying or selling the stock?
  • Does the company have a lot of operating leverage and financial debt leverage (a bad combination if sales start to fall)? Operating leverage works both ways: If sales fall, earnings fall faster, and the company’s interest coverage ratios fall, making it more difficult to service its debt.
  • Does the company have a unique business model or is there something else unique about the business that is hard to replicate?
  • Rapid customer growth with fast sales cycles (preferably bottom-up/land and expand model)
  • Management (VAR)
  • Does the business have clear opportunities to reinvest capital at high rates of return?
  • Does the business have too much debt?
  • How would you evaluate this biz if you became CEO?
  • Does the business have rising or stable margins, with particular emphasis on gross margins and net operating profit after tax (NOPAT) margins?
  • Risk Management is an extremely important but complex concept and process, principally because the most discussed risks are often not the ones that end up being influential. The simple, core tenet of our original risk management process is a good one and remains our central concept: the best risk management occurs at the individual idea level, assuming that the overall portfolio is well-hedged, not over-leveraged, and reasonably diversified. Some important considerations with respect to managing risk include:
  • **Big market loser: **Great stocks beat the market over time. Losers seldom turn. If the stock has lost to the market by more than 100% over the last 5 years (or since IPO) its a -5. A 50% loss is a -3.
  • What are the biz fundamentals?
  • How (and how much) can a good company differentiate itself from a bad one in this industry?
  • What is their background, and what do their former colleagues, investors, classmates, say about them?
  • Moat direction: I want to see some evidence that the moat is widening or at least stable. More services/products/scale/customers/patents are all acceptable ways to widen a moat. Weakening moats get 0. Stable = 2 or 3. Widening = 5 Max score - 5.
  • How does the company use debt? Is it strategic (issuing long-term debt at today’s record-low interest rates), is it out of necessity, or is management mortgaging the company’s future to buy back stock and increase the dividend while underinvesting in growth and adaptability?
  • Is there a business-model risk?
  • Are the barriers to entry high?
  • Has the CEO created an ESG-centric culture that permeates every level of the business, including having an executive compensation plan that’s partly based on ESG-related criteria (see Accenture)?
  • Is it maintaining high organic revenue growth or is top-line growth even accelerating?
  • Catalysts - Buybacks? Misunderstood? Is enterprise having a big problem that is fixable? Everyone’s been burned by the stock so afraid to buy it.
  • Business Model (VAR)
  • What type of manager is CEO?
  • Does the CEO have a strong No. 2 in a role such as CFO or Chief Operations Officer?
  • Does the company’s product or service save the customer time or money?
  • Progress towards profitability (improving non-GAAP gross and operating margins and cash flows, sales efficiency)
  • CEO value employees?
  • Is the business committed to innovation and adaptability? Is the management committed to investing to future-proof the business?
  • Looking forward, what is the company’s valuation in terms of:
  • Is the CEO also the founder or co-founder?
  • Does the business have a moat around it? Is the industry facing strong secular change or is it one that will be around in 5-10 years?
  • **Intangibles:**A premium brand (but ONLY IF the brand name causes consumers to pay more). A long-lived patent (Celgene) or government license of some kind (Moody’s). Max score is 15.
  • Does the business have the very best product and the very best customer service in the industry? Is the product or service integrated into the fabric of the customer’s business? Is there a very close relationship with customers that creates constant feedback and innovation?
  • Can the company monetize its users over time? (Demonstrated by high net dollar retention (for SaaS companies) or rising ARPU (for consumer companies))
  • Does the business have a toxic or unhealthy corporate culture?
  • How does the business make money?
  • Is it a high-quality businesses that can’t blow up and should grow in value over time?
  • Is it trading at a good price? What is the downside to your worst case scenario? Is there a case for making a 26% IRR (i.e., double in 3 years)? Obviously, with these questions I’m looking for asymmetric payoffs.
  • Am I pushing my own agenda with this question? What do I really think about the company? Can I put this to the side and be guided by the executive?
  • What is missing from the company filings that would be helpful? Have I read the competitors’ filings to find similar metrics as a reference?
  • What are the 1-3 main things that will drive the business, and what data can I used to track them over time?
  • How capable is management? Do they have a commitment to enhancing shareholder value? Personally, I look for owner-operators. See Management Interview Prep.
  • What is the relative power of: (VAR)
  • How are senior managers compensated, and how did they gain their ownership interest?
  • Is the business completely customer- and product-obsessed?
  • Do you understand this business?  Test yourself and describe it to a ten year old.
  • Has management made dumb acquisitions or issued shares below intrinsic value? Is management willing to divest unprofitable operations?
  • What is the company’s go-to-market strategy?
  • Is the company a market share leader, and does it have limited competition? Is its market share growing?
  • CEO have integrity?
  • Are the businesses’ unit economics positive? (Demonstrated by the company having LTV to CAC of about 3x or greater)
  • Is the business committed to investing in innovation and long-term growth through research and development (R&D), capital expenditures, and recruiting and retaining top talent? What I’m ultimately trying to figure out is if the business is innovating and adapting to maintain growth and relevance in a rapidly changing digital world.
  • Large and growing TAM vs market share (>$2B market cap, the potential to 2-3x over the next 3 years, position on S-Curve?)
  • How do I build trust and respect with this particular executive? How can I quickly build a sense of kinship? What can I share with this executive to increase the mutuality of the exchange?
  • Is the focus on Return On Equity? Has the company created at least one dollar of market value, for every dollar retained?
  • What good news, and what bad news, will affect the company in the coming year?
  • What amount of debt is corporate debt versus bank debt?
  • Operating leverage ahead: I want to own businesses that are scaling. 0 points if still producing a net loss. 1 point if net loss but showing clear signs of operating leverage. A 4 is a business that is already expanding operating margins and can do so for a few more years. Max score - 4.
  • Does the business reflect what I think the world will look like in the future?
  • Is the business overly reliant on global supply chains?
  • Founder CEO, experienced management, and high insider ownership (insider buying?)
  • Can the company be purchased at a significant discount to its value? This is Buffett’s last and most important question. It should be noted that he has done this countless times over the years.
  • Headquarters: HQ in a developing country like China = -3. Israel = -2. Developed country but not U.S. = -1. U.S. = 0.
  • Does the company earn high returns on capital (ROIC)?
  • Does the business have embedded optionality either through large net cash on the balance sheet and strong FCF, a strong core business that redirects cash flows to fast-growing adjacent businesses or into new market opportunities (both from a product/service standpoint and geographic standpoint), or a business that was a first mover in an emerging frontier-market opportunity (such as virtual reality, robotics, autonomous driving, 5G, the Internet of Things, gene sequencing, or space travel)?
  • Am I viewing this as a business and not just a stock? Am I taking the mindset of buying the business outright, and retaining management?
  • Is the balance sheet conservative to allow the company to endure—and hopefully take advantage of—even the most difficult of economic environments?
  • Tiger Management Research Framework (Part 1 and Part 2)
  • What is company’s growth rates in terms of earnings, EBITDA, and FCF?
  • Return on equity: - I want companies that create value as they grow, not destroy it. A decent proxy (but far from perfect) is return on equity > cost of capital. ROE below 10% is a 0. 10% to 20% is a 1 or 2. Above 20% is a 3. I will make a small adjustment upward if a business produces a tremendous amount of cash flow but not earnings. Maximum points - 3.
  • High gross margins (>70%) and organic revenue growth (>40%, preferably w/potential to accelerate)
  • Warren Buffet’s Checklist
  • What defines the quality of the business (strong brand awareness, customer loyalty, pricing control, cost advantages)?
  • Is customer dependent on business?
  • CEO independent thinker?
  • What is the cyclical nature and capital intensity of the industry? Is the business both cyclical and capital intensive (something that is often a bad combination)?
  • Geographic/industry familiarity (US-based? Can I easily explain their product offering?)
  • Recurring revenue: I want to own companies with lots of recurring revenue. Examples include razor/blade, consumables, transactional businesses, or subscription. No recurring revenue = 0. Mostly revenue is recurring = 5. Max score - 5.
  • What are the company’s financial health ratios including net debt to free cash flow, interest coverage, debt to equity, debt to total capital, net cash to total assets, net cash to market cap, and goodwill (intangibles) to total assets?
  • Centralized or decentralized?
  • What would be unique way to get familiar / deep here?
  • Are there any off-balance sheet liabilities that need to be accounted for?
  • Most importantly, how good will the company be in 10 years versus the competition from peers.
  • Is there a high profit margin, i.e. is there operational margin of safety?
  • Acquisition: I want companies that gain customers easily without needing to advertise or spend big on marketing. Word of mouth customer acquisition is key today, especially given the proliferation of social media. Companies that have to spend big to acquire a single new customer are not nearly as ideal as a one that has such good product/market fit that they come without much effort. Please note that “Customer” = the person who PAYS FOR THE PRODUCT/SERVICE. Facebook users are not customers, though I’ll award partial credit for a growing network like that. Facebook advertisers are the real customers. Max score - 5.
  • Do I know exactly how the executive spent their day-to-day at the company? What was the executive paid to do?
  • What are the sources of its competitive advantages? (culture, adaptability, brand and other intangibles, high switching costs, scale, network effects)?
  • What is their background, and what do their former colleagues, investors, classmates, say about them?  Have they been successful in the past?  (Very important)
  • Is the business fundamental to our way of life? In other words, if the business suddenly disappeared, would the world be set back five, 10, or even more years?
  • Who is the CEO and who are the board members? Do they have a good track record? Is management candid with the shareholders?
  • Is the business’s balance sheet strong or weak?
  • Does the business have poor customer service?
  • What is the rate on “owner earnings”? Owner earnings is an extrapolated estimate of an owner’s earnings (free cash flow) over a defined period (typically a year).
  • If you had access to unlimited capital, how would you feel about your chances of successfully competing against this company?
  • Does the business have a product or service that is relevant and in high demand?
  • Insider ownership: I want management team to have a significant portion of their net worth tied up in the business. For small companies, this means high levels of insider ownership. For large companies, I want to see tens of millions of dollars in stock ownership. I don’t think setting specific percentage targets is important because of the wide disparity in market caps. Tim Cook owns far less than <1% of Apple but I’d guess that 95%+ of his net worth is tied directly to Apple’s stock price. Shouldn’t that count for something? Max score - 3.
  • Free Cash Flow Yield (After-Tax Free Cash Flow/Market Value)
  • Financial Resilience: Basically, I want a company with a strong balance sheet that could easily survive (and thrive) in an industry downturn. However, some businesses naturally rely on debt (REITs) and could still be very resilient. This is a big change from my former method of just looking at cash/debt. Score is from 0 (Super fragile) to 5 (A fortress). Maximum score - 5
  • Shareholder friendly actions: Pays a rising dividend, buys back a lot of stock, or using funds to pay down debt all qualify. Max score - 3.
  • The industry is being disrupted: If you are Cicso and you have an Arista taking market share left and right then its a -5. If you are at some risk of disruption it’s a -3 or so (like MasterCard is with cryptocurrencies). No risk that I can see is a 0.
  • Does the CEO have a soul in the game, in addition to skin in the game?
  • What is the company’s cost of debt (the interest rate it pays to borrow money)? What are its maturities on its debt (repayment schedules)? And can the company withstand rising interest rates?
  • Have I written down in simple sentences what I believe are the core drivers of intrinsic value for the company? What else do I __think __is important?
  • Is there a lack of transparency from management?
  • Network effect: A strong network effect is an incredible competitive advantage. As long as it is a true network effect (like Facebook) and not a faker network effect (like Western Union) it is very powerful. Score range is 0 to 15. Max score - 15 points.
  • Focus on return on equity, not earnings per share.
  • Strong growth (shows there is demand for the product)
  • Did I perform a DuPont Analysis?
  • Does the business have net cash or net debt? Large net cash positions can be a key source of optionality.
  • Is the management team comprised of the kind of people you want to partner with, and are their interests clearly aligned with your interests? It’s not worth being business partners with people you don’t like and admire, and as an owner of the business they are running, you are essentially their partner.
  • If we ever have another economic shutdown as we experienced in the first and second quarters of 2020 in response to the global coronavirus pandemic, how long can the company’s cash on its balance sheet cover the company’s total annual expenses on the income statement (assuming the company generates zero revenue)? This is the ultimate stress test.
  • Does the business suffer from mismanagement or poor leadership?
  • What is the total addressable market (TAM) and is the market growing?
  • Is it able to increase prices while maintaining high demand?
  • Investment Principles & Checklists eBook; Source
  • Is the CEO a first-ballot entrant in the Management Hall of Fame (if such an award existed)?
  • What are you getting? (i.e. how good a business is it? Normalized EBIT/(NWC + Net Equipment))
  • Extreme dilution: Stock-based compensation is a part of life….i get that. However, if the share count is rising by 5% annually from stock-based comp alone then it’s a - 4. Between 3%-5% is a -2. Less than 3% annually is acceptable.
  • Have you looked at the innovation decision tree?
  • Is the product mission­-critical for customers but accounts for only a small percentage of customers’ cost of doing business?
  • Does the company’s product or service fundamentally change the way we work or live?
  • Gross margin: A high gross margin signifies that a business creates a tremendous amount of value for its customers. If it is growing then it can be a sign that the company has pricing power. A high gross margin creates a lot of room for management to care for all stakeholders at the same time and still earn good profits. Below 50% = 0. 50% to 80% = 1 or 2. Above 80% = 3. Max score - 3.
  • Top dog and first mover in important, emerging industry and/or industry disruptor: Company gets points for meeting some and/or all of this criteria. Max points - 3.
  • Does the business have a culture of profitable growth or a culture of growth at any cost?
  • Growth by acquisition: Companies that grow only through acquisition get a -4. If acquisitions are regularly made to bolster growth — but organic growth still exists — then it is a -2. Otherwise, it is a 0.
  • Does the company/sector have any pricing power?
  • What is the company’s capital structure, and how does it compare to its peers?
  • What are the catalysts (triggers) for the company’s proper valuation to be realized?
  • Pricing power: I want to own businesses that can raise prices at will and not lose their customers. I will also award lots credit to companies that I think could raise prices easily but may choose not to in order to capture additional market share early (Netflix, Chipotle, and Costco come to mind). No pricing power = 0. GDP = 3. Lots = 5. Max score - 5 points.
  • Do you have 70%+ growth margins?
  • Is this a good business? What are the key success factors to superior performance in this industry? (Value Added Research “VAR”)
  • Technical indicators (healthy relative strength, volume, accumulation/distribution, moving averages trending up, etc.)
  • Does management resist the “institutional imperative”? In other words, do they avoid groupthink.
  • What are the economics of the base business unit?  How does it stack up against competitors?
  • Antitrust concerns: Amazon, MasterCard, Google, and Visa are so dominant that they could find themselves in regulator’s crosshairs down the road. -3 if this threat exists.
  • What new __information __or __facts __about the company did I learn? Does any of this new information cross-check with other comments from executives?
  • Focused, mission-driven company culture, ambitious vision (4/5+ Glassdoor rating?)
  • Is the business experiencing industry headwinds — long-term trends working against the company?
  • What is the company’s mission and is it trying to solve an important problem?
  • Earning per share: I want to reward companies that are posting positive EPS. GAAP is preferable, but I’ll also take Non-GAAP EPS. Negative EPS = 0. Positive but stable or growing slowly is a 1 or 2. Positive and growing rapidly (above 15%) = 3. Maximum points - 3.
  • Is the company’s leaders honest?
  • Mission statement: I want to see that a business has a purpose beyond making money. It should be simple, inspirational, and clear. 0 points if “creating shareholder value” is a priority. Partial credit is given for OK mission statements. Max points - 3.
  • What is driving the margin increase or decrease? Pricing power? Scale, high operating leverage, and incremental margins? A new product launch? A shift in the mix of the business from selling lower-margin to higher-margin products or services? Acquisitions or divestitures? Cost-cutting programs? A change in corporate tax rates or other regulations?
  • CEO self-promoting?
  • Are there low barriers to entry?
  • How enduring are pricing power and recurring revenue?
  • Glassdoor ratings: I want the place to be a great place to work, have a highly rated CEO, and be highly recommended to a friend. These factors will help the company with talent recruitment and retention. An ideal score is an overall rating above 4, CEO approval rating above 80%, and recommend to a friend above 80%. Partial credit given for mixed scores. Max score - 4.