This due diligence checklist represents the foundational evaluation framework I use when considering any investment opportunity. It is designed to be thorough, systematic, and adaptable across various asset classes while maintaining a disciplined approach to risk management.
Business Fundamentals
Business Model Analysis
Clearly articulated and understandable business model
Revenue generation mechanisms and pricing power
Customer acquisition costs and retention metrics
Unit economics and path to profitability (if applicable)
Recurring revenue components and stability
Look for simple, cash-generative business models with understandable economics
Competitive Landscape
Market size and growth potential
Competitive position and market share
Sustainable competitive advantages (moat)
Threat of new entrants or substitute products
Industry power dynamics (suppliers/customers)
Prefer industries with rational competition and businesses with defensible market positions
Growth Potential
Historical growth rates and consistency
Addressable market size and penetration levels
New product pipeline and innovation capability
Geographic expansion opportunities
Growth constraints and scalability challenges
Management Assessment
Leadership Quality
Track record of execution and meeting commitments
Strategic vision and industry expertise
Management tenure and succession planning
Communication quality and transparency
Response to setbacks and challenges
Character and competence are equally important in leadership assessment
Alignment with Shareholders
Insider ownership levels and recent transactions
Compensation structure and incentives
Capital allocation history and priorities
Share repurchase discipline and dividend policy
Related party transactions and conflicts of interest
Financial Analysis
Income Statement
Revenue growth trends and consistency
Gross margin stability and trajectory
Operating leverage and margin expansion potential
Earnings quality and accounting policies
Reconciliation of GAAP vs. non-GAAP metrics
Look for consistency and predictability in financial performance
Balance Sheet
Debt levels and maturity schedule
Interest coverage and debt service capability
Working capital management efficiency
Asset quality and potential write-down risks
Off-balance sheet obligations and commitments
Cash Flow
Free cash flow generation and conversion rates
Capital expenditure requirements and flexibility
Seasonal or cyclical cash flow patterns
Cash flow sustainability and growth potential
Discretionary vs. maintenance capital spending
Cash flow truth often reveals what income statements may obscure
Valuation
Multiple Approaches
Comparative analysis vs. historical multiples
Peer group valuation benchmarking
Discounted cash flow modeling with sensitivity analysis
Replacement cost and sum-of-the-parts valuation
Scenario-based outcomes (base, bull, bear cases)
Use multiple valuation approaches and look for convergence
Risk-Reward Assessment
Downside protection and margin of safety
Catalysts for value realization
Time horizon required for thesis to play out
Opportunity cost vs. other potential investments
Position sizing appropriate to risk profile
Risk Factors
Business Risks
Customer concentration issues
Product or service obsolescence potential
Regulatory or compliance challenges
Disruption threats and technology shifts
Cyclicality and economic sensitivity
Financial Risks
Leverage and refinancing requirements
Foreign exchange exposure
Pension or other long-term obligations
Litigation and contingent liabilities
Cash burn rate (for pre-profit companies)