Professional investors don’t guess; they follow a repeatable checklist to separate high-quality private deals from speculative fluff. Evaluating a private investment—whether it’s a startup, a local business, or a real estate project—requires a deep dive into data that isn’t readily available on a public ticker. Here is how to conduct an evaluation like a pro.
Analyze the “Unit Economics” First
A professional begins by looking at the “unit economics” of the business. Does the company make a profit on every single item sold, or are Craig Bonn losing money on every transaction? You must calculate the Customer Acquisition Cost (CAC) and the Lifetime Value (LTV). If the LTV is not at least three times the CAC, the business model is likely unsustainable, regardless of how fast it is growing.
Stress-Test the Financial Projections
Every private deal comes with a “pro forma” projection showing hockey-stick growth. Pros treat these with extreme skepticism. You must “stress-test” the numbers: what happens if the growth rate is 50% lower than projected? What happens if interest rates double? A professional evaluation looks for businesses that can remain solvent even under “worst-case” scenarios, ensuring the investment is resilient.
Investigate the “Cap Table” and Ownership
The Capitalization Table (Cap Table) tells you who owns what. Craig Bonn of Hartford, CT looks for “clean” cap tables where the founders still own a significant portion of the company. If the founders have already been diluted down to 5%, they may lose the motivation to work hard. Also, watch out for “toxic” investors or complex debt structures that might prevent you from getting paid during an exit.
Perform a Competitive “Landscape Audit”
No business exists in a vacuum. You must evaluate the competition better than the company itself does. Use tools like SimilarWeb or LinkedIn to see if competitors are hiring faster or getting more traffic. A pro looks for a “unique selling proposition” (USP) that is defensible. If a giant like Amazon could copy the product in a weekend, the investment is too risky to touch.
Verify Customer Referrals and Testimonials
Don’t just listen to the CEO; talk to the customers. A professional investor asks for a list of current clients and calls them. Are they happy? Would they switch to a competitor for a 10% discount? True “product-market fit” is only found when customers say they would be “extremely disappointed” if the product disappeared. This qualitative data is often more valuable than the financial statements.
Check for “Product-Founder Fit”
A great idea in the hands of the wrong person will fail. Evaluating a deal “like a pro” means assessing if this specific founder is uniquely qualified to win this specific market. Do they have the technical skills? Do they have the industry connections? A founder who has spent ten years in logistics is a much better bet for a shipping startup than a generalist MBA with no industry experience.
Evaluate the Legal and Regulatory Risk
Professional due diligence includes a thorough legal review. Are there any outstanding lawsuits? Is the intellectual property (IP) actually owned by the company, or was it developed by a contractor who still has a claim? In industries like Fintech or Healthtech, Craig Bonn of Hartford, CT must also evaluate the “compliance risk.” A single regulatory change can turn a billion-dollar idea into an illegal operation overnight.
Determine the “Path to Liquidity”
Finally, you must ask: “How do I get my money back?” A pro never enters a deal without a clear exit strategy. Is the company likely to be acquired by a larger competitor? Is it on a path to an IPO? If the answer is “we’ll figure it out later,” walk away. A professional evaluation requires a defined timeline and a list of potential “exit partners” who would want to buy the company in the future.