Due diligence for an early stage investment

What due diligence should I perform on the market?




2 min read

The market is one of the first things to consider when evaluating the potential of an investment opportunity.

Firstly and most importantly, is there a market for the company’s product or service and how large is it? Is it local or global? Is it a growing market and how quickly is it doing so?

Big, growing markets generally have less competition and more niches in which a company can potentially become a leader. Remember that a small slice of a large pie can be bigger than a large slice of a small pie.

Is the market highly competitive and where does the company’s product or service offering fit in relation to the competitors. How easily could competitors copy what the company does?

If the company is entering a market or planning to enter one for the first time, how easy will that be? Are there any major barriers to entry and if so - what are they and is it the right time to be entering the market? And what share of the market does the company intend to go after?

Another point to consider is how easy it is to acquire customers. Will the company need to spend a large amount of money to get them? Does the company’s product or service have ‘evergreen‘ potential and require relatively modest effort to continue selling after the initial acquisition of a customer. Or are there likely to be high levels of customer churn?

Pricing will also have an effect on the company’s ability to succeed in the market. The price that customers are willing to pay has to be balanced against the cost to the company of creating and delivering the product or service.


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