Deciding to do a Deep-Dive

How does a Venture Capitalist decide that they need to spend more time on a business plan and do comprehensive due-diligence on it? What factors are important and what is the thought process behind sending back an idea, and spending time on an idea?
Through my experiences at Intel Capital and University Venture Fund (Wharton Chapter), and discussions with mentors in the industry, I have seen a common theme come up. This thought process is important especially for post-MBAs because that is what you will spend a lot of your time doing: Sifting through business plans to find that elusive investment gem.
So here I put together a simple (and frankly very common) framework to take a look at a business idea. The framework has five aspects to it:

1. Team
- Who is on the team and what kind of background do they have? Are they credible and more importantly, are they hungry?
- How is the team relevant to the business plan that has been put together? Why are they on the team in the first place?

2. Problem
- What problem is the startup trying to solve?
- Is there a market for the solution? Is the Total Addressable Market (TAM) above a particular size (usually ~$300M or more)

3. Solution
- How is the problem being solved? What are the details of the solution?
- What is the competitive landscape of the sector?
- What other kinds of solutions are out there and what is the point of differentiation for the startup?
- Does the solution create some other potential problems?
- How do they plan to reach their customers? Is there a distribution strategy and if so, is it viable?
- Is the solution defensible and has IP protection?

4. Economics
- What are the margins on the product? Are they sustainable across the channels?
- What kind of capital do they intend to raise? Where will it be used?
- What are the financials of the company 2-3 years down the lane? What about 5 years later?

5. Exit
- What are the potential avenues for an exit?
- What kind of exit do we forsee, and what kind of return do we see on this investment (Ballpark figure)?

This exercise may not take more than a few hours at most, and less than an hour at least, but it should quickly provide the potential investor with a sense of whether they want to devote more time on this idea or not.
At the end of the day, an idea does not make a company, people do. Hence, beyond these questions it is probably more important to pick up that phone and call a friend to ask about the team behind the company. And then proceed from there.

My 2 cents on how to quickly surf through an idea. You do it differently? Shoot me an email or leave me a comment.