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How to Diligence a Medical Device Startup

How to Diligence a Medical Device Startup

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    How to Diligence a CPG Firm

    November 23, 2025

    7 min read How to Diligence a CPG Firm Diligencing a consumer packaged goods (CPG) business has nuances that set it apart from pure software or marketplace investing. Whether you’re an angel investor, family office, or VC, evaluating a CPG company means diving into supply chain dynamics, product economics, brand strength, and more. Here’s a structured, risk-aware playbook to help you evaluate a CPG firm like a pro. 1. Understand the Business Model & Unit Economics Gross Margins and Cost Structure Ask for a breakdown of the cost of goods sold (COGS): raw materials, packaging, labor, and overhead. Determine how variable costs scale: Does margin improve with volume, or are there fixed costs that drag at low volumes? Verify whether the company’s pricing is sustainable in different sales channels (direct-to-consumer vs. retail). Lifetime Value (LTV) vs. Customer Acquisition Cost (CAC) If the company sells direct to consumers, evaluate repeat purchase behavior: what is the retention rate over 6- and 12-month cohorts? For wholesale distribution, calculate the per-customer margin and reorder frequency. Model LTV in each channel and compare it against CAC across those same channels. Pricing Strategy and Sensitivity How elastic is demand for their products? If costs rise or discounts shrink, how will that impact volume? What is their value narrative — are they competing on premium quality, sustainability, or price? That will shape pricing power. 2. Supply Chain & Manufacturing Risks Sourcing and Raw Materials Who are their suppliers, and how diversified is the supply base? Are there single-source risks? (e.g., only one supplier for a key ingredient.) What is the lead time for critical raw materials, and how volatile are their costs? Manufacturing Capacity & Scalability Where is the product manufactured? In-house, co-packer, or a network of partners? If they use co-packers, do they have contracts in place, and is there slack capacity for scaling? Are there quality control systems? Ask for defect rates, returns, or consumer complaints. Inventory Management What is their inventory turnover? High inventory on hand could indicate demand forecasting risk. How do they manage shelf life, especially for perishable or seasonal products? What’s the working capital tied up in inventory — is it a cash drag? 3. Go-to-Market Strategy Distribution Channels Where do they sell: DTC (direct-to-consumer), brick & mortar retail, grocery chains, or specialty stores? For retail distribution: what’s their push strategy? Do they have favorable slotting terms? What are their trade spend and promotional allowances? For DTC: analyze their customer acquisition channels (paid ads, organic, SEO, email), conversion rates, and cost per acquisition. Brand Strength & Positioning What is the company’s brand story, and how does it resonate with its target customer? Do they have customer testimonials or social proof (e.g., reviews or word of mouth)? How do they differentiate (taste, packaging, sustainability, health angle)? Is this differentiation defensible, or is it easily copied Marketing Efficiency What percentage of revenue is being reinvested into marketing? How efficient are their sales funnels? (e.g., Email open/click rates, ad ROAS, conversion from trial/sample to repeat purchase) Are there community or viral growth vectors (referral programs, user-generated content, influencers) 4. Regulatory and Compliance Considerations Food Safety & Quality Does the CPG company comply with relevant regulatory bodies (FDA in the U.S., local food safety authorities elsewhere) Request documentation such as HACCP plans, food safety audits, or third-party quality certifications (e.g., SQF or BRC). How do they handle product recalls, and what is their track record? Packaging & Labeling Are labels compliant with nutrition, ingredient, and allergen disclosure regulations? Does the firm use any sustainable or recyclable packaging? If yes, how does that impact COGS and supply chain risk? Environmental, Social, Governance (ESG) If ESG is part of their value prop (eco-friendly, local sourcing), verify their claims with evidence, such as supplier audits, lifecycle assessments, carbon impact assessments, etc. Are there sustainability-related liabilities (e.g., packaging waste, carbon offset obligations)? 5. Product & Innovation Evaluation Product-Market Fit Conduct a sensory evaluation: sample the product (if possible) or collect feedback from early customers. Analyze repeat purchase rates, product lifecycle (i.e., are customers buying again, or is it a “try once” product?). How broad is their SKU (stock-keeping unit) mix? Do they plan to expand into new SKUs or adjacent categories? Innovation Pipeline Do they have a roadmap for new flavors, size formats, or product lines? How much of their R&D or product development budget is allocated to innovation vs. core SKUs? Have they tested new products in pilot markets? What were the results? 6. Team & Operational Execution Founders & Leadership What is the founding team’s background? Do they have experience in consumer goods, manufacturing, or retail? Have they scaled a physical product business before, or is this their first CPG venture? Meet the team responsible for operations, supply chain, and quality — are they capable of handling scale? Organizational Structure How is the organization structured across procurement, manufacturing, sales, and marketing? Do they have robust systems for demand forecasting, production planning, and logistics? What is their talent strategy for hiring and retaining people in key roles? Execution Metrics Ask for KPIs such as yield rates, batch failure rates, on-time delivery, inventory shrinkage, and return rates. How quickly have they scaled since launch — both in production volume and sales? What evidence is there of operational discipline (e.g., documented SOPs, contracts with co-packers, audits)? 7. Financial & Capital Structure Historical Financials Request P&L statements, balance sheets, and cash flow for at least the past 2–3 years. Compare their burn rate vs. growth: are they reinvesting heavily, or burning cash without traction? Understand working capital needs: how much cash is tied up in inventory or accounts receivable (especially for retail customers)? Projections & Scenario Modeling Review their financial model: are their assumptions realistic around growth, margins, and cash needs? Run downside and base-case scenarios: what happens if growth slows, COGS rise, or customer acquisition costs increase? How much capital will they need to scale, and what is their runway? Cap Table & Funding History Ask for a full

    The Thorough Approach to Due Diligence

    February 5, 2024

    3 min read  The Thorough Approach to Due Diligence. A startup investment goes through a series of stages. The first stage is the pitch presentation, in which the startup introduces the deal to the investors. Next comes a follow-up meeting where the investors can dig in to learn the details. After this meeting, investors typically take time to think about the deal and observe the startup as they continue to make progress. The third stage is the due diligence phase. In this phase, investors review the startup’s documents, team, and market thoroughly. If the terms sheet has been established by other investors, the investors review those documents. If not, the investor will negotiate the terms- including valuation. This article will look at the due diligence phase in detail, outlining how to perform a thorough diligence approach. The Thorough Approach There are several approaches to due diligence. The most common is the “Thorough Approach. ” In this process, you review each aspect of the business and focus on the top items. The main areas to cover in due diligence are: Market What’s the market size (total, serviceable, beachhead?) How fast is it growing? Product What is the state of the product, both technical and market? Does it solve a burning need or add a general value? What has actually been developed? What remains to be developed to go to market? Who has used the product, and what do they say about it? Legal What contracts are in place? Are there any lawsuits? Intellectual Property What patents have been filed/approved, and when? What trade secrets do they have? Financials What revenues have come in? What financials are pending? What is the burn rate? Capitalization What is the capitalization structure? Who are the major players? People Who are the key players, and what are their roles and responsibilities? What contracts are in place with each key player? Market Due Diligence As an investor running due diligence on a startup, the key issue to focus on is the size of the market- the larger the market, the greater the growth potential of the startup. Luckily, there is rarely a need to pay for research since so much exists on the web. In searching the web, you’ll find research reports giving market sizes, trends, analysis, and more. The key is to analyze the market at three levels: Total Available Market: Anyone the company could ever sell to Serviceable Market: The target market the company wants to serve Beachhead Market: The first niche the company will pursue Ideally, the beachhead market would be a small yet well-defined group of companies that fit the startup’s current product. It doesn’t necessarily need to be the biggest or most lucrative market but rather the easiest to pursue. The startup should already have some interactions with the companies in the Beachhead market. Team Due Diligence The team is the most critical factor for an investor to analyze during the due diligence process. Since the startup likely has only a nascent product and some intellectual property, the team is the only thing that can really be dug into. First, the investor team should review the resumes of those who are on the team or plan to join when funding becomes available. Placeholders of ‘We’ll look for someone later’ is a red flag. The CEO should know who they are planning to bring on. It is also important to find out how long the team has worked together and if they even have worked together in the past. Next, look for domain knowledge: Who has it, and how current is it? Investors should also look for complementary skills. For example, if there is a team member who has complementary sales skills, will they spend their time selling the product? Or will the person who will build the product manage an internal development team? This question is still valid even if the startup is choosing to outsource. Outsourcing product development with no one actively managing it is a recipe for disaster. Finally, look at ‘completeness’. Many successful teams follow the Designer, the Hacker, and the Hustler formula. The Designer knows the customer problem and plans the product development, including how it will be monetized and promoted. The Hacker is the developer who builds the product, and the Hustler is the one who sells it. Does the startup you wish to invest in have a formula? Quantitative vs Qualitative Due Diligence There’s a quantitative side and a qualitative side to due diligence. The quantitative side includes checking the list of documents in the data room to verify the accuracy of those documents. For example, Do the entity filings match what the company claims to have? Do the intellectual property documents match what they claim to have? The qualitative side of diligence includes evaluating the team and the growth prospects in the market, sizing up the competition, and predicting the company’s ability to execute. Somebody should do the quantitative side with industry experience as it requires more discovery. An analyst or assistant can help with the phase.   Read More from TEN Capital Education here. Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

    Team Due Diligence

    November 26, 2023

    1 min read No one wants to invest in a startup that is doomed to fail; enter Team Due Diligence. “What we hope ever to do with ease, we must learn first to do with diligence.” – Samuel Johnson Performing the proper Team Due Diligence is an essential part of the investing process. The most critical factor in that process is understanding the startup’s team. Since a startup has only a developing product and perhaps some intellectual property, digging into the team is an excellent indicator of its potential success. It can be your number one key to understanding if the business is worth your investment. Here are some things to look for when doing your team’s due diligence: Team Resumes. Look at the resumes of those who are prospected to join the team when funding becomes available. The CEO should know who they are planning to bring on once they have the funding. Domain Knowledge. Who has the expertise, and how current is it? Complementary Skills. Do they have a team member with sales skills? Is there someone who is going to develop the product? Is there a member with people management skills who can grow the team? How long has the team worked together? Ideally, the team has some experience working with each other. The more time they’ve had together, the better. Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

    Technical Due Diligence

    August 20, 2023

    2 min read Technical Due Diligence Technical Due Diligence (TDD) is a detailed evaluation of a company’s technical side, including existing software and hardware products and those in development. Potential investors must gather detailed information about a prospective company to highlight any potential risks associated with their investment. While the Technical Due Diligence process may seem intimidating to some small business owners initially, it is, in fact, a routine step. If efficiently planned and executed, a TDD should be able to answer investor questions in easy-to-understand terms. Whether you are a potential investor, or a startup new to the process, the following article provides an insightful take on making the process work. When embarking on the TDD process, investors typically want to know about 4 major areas: Strategy: Do the company and its product(s) fit within the investor’s overall growth objectives? Does the company’s own strategy match up with the investors’ strategy? Quality: Are there quality issues with the company’s product that will require fixing? If product development or fixes are needed, what are the expected costs? Growth:  Is the company or its product poised for growth? What roadblocks would hinder growth in terms of labor, manufacturing, infrastructure, and development? Can the product be scaled? Stability:  Are the company founders and their employees in it for the long haul? Are their processes organized and well-documented? Are there contingency plans and redundancies in case of an unforeseen event? Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

    Due Diligence Box: What Is It and How to Prepare One

    June 17, 2023

    2min read Due Diligence Box: What is it and How to Prepare One After an investor expresses interest in funding your deal, the first question to ask is: “What is your diligence process?” Having a due diligence box with the standard documents helps a great deal. It shows you are prepared and typically only requires minor additions for each investor.    The Due Diligence Process While most diligence processes follow the same document review and analysis format with a round of follow-up questions, each investor has their own start time, work timeframe, and specific documents they look for. It’s best to ask for their process, and then follow along with it. If the investor does not have a specific process, then presenting the due diligence box should be enough. For new investors who are not sure what to do, you can offer to walk them through the diligence document by showing them all the relevant information. It can be helpful to contact the associate or analyst who will be doing the detailed work and open a direct line of communication with them. By building a rapport, you may contact them directly for progress status and updates. You can also position your calls as opportunities to answer questions and to help the associate find specific pieces of information. Investors are busy and can get drawn away by other deals, so it’s important to be timely with your follow-up. Having a due diligence box with the standard documents greatly helps with this. It shows you are prepared, and typically only requires minor additions for each investor.   Due Diligence Box In preparing a due diligence box, also called a data room, there are basic documents to include. These documents consist of:  Income Statement and Balance Sheet 3-5-year Financial Forecast Cap Table- including shares outstanding Entity Filings including Articles of Incorporation Intellectual Property Filings- including patents, trademarks, etc. C-level Team Resumes  There may be other documents you may need to add based on your situation.   Reps and Warranties Contract One document that is helpful but not required to include in the due diligence box is a reps and warranties contract. Information taken in by investors about a startup’s product, team, financials, revenue, and more can change rapidly during the startup phase of the business. One method of assuring the investor the information provided is true and accurate is for the startup to sign a Reps and Warranties contract. This is often tied to the diligence provided.   This contract states that everything provided in the diligence is true and accurate and that no material has been omitted. If it later turns out that there’s a material difference between the business and the diligence, then the Reps and Warranties contract provides legal recourse to the investor for recovering any damages. For example, if the financial statements indicate there’s no debt in the business, then the investor assumes the business is debt-free. If the startup does in fact have debt, then the investor can take legal action against them.  Some investors demand such a contract to be signed to ensure they have the full picture of the business. Signing a Reps and Warranties Contract can strengthen a startup’s case on the diligence provided.   Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

    The Three Levels of Due Diligence

    October 28, 2022

    2min read How much due diligence is enough? While there are many checklists and rules of thumb surrounding the process of due diligence, the endpoint never seems clear. Most investors dedicate a certain number of hours, 20, 30, or more, and when those hours are used up, they make the investment decision. In my experience, there are three levels of due diligence: First Level The first level answers the question, “do we invest or not?” After reviewing the standard documents and talking to customers and industry professionals, the investor decides if the potential rewards outweigh the risks. Second Level The second level of due diligence answers the question,” what will the startup have to accomplish to be successful?” This is not always an obvious answer, such as making sales, or gain a 10% market share, or ensuring the product works. There are often one or two critical factors that determine success. In today’s world, it increasingly comes down to cost. The cost of customer acquisition, product development, or something else. Yes, the startup can find customers and sell a product, but at the end of the day, the margins come out razor-thin, if not negative. Another critical factor I see is building the team. Can we find the right people to fill the gaps (and there are always gaps)? Do you know what the startup must do to achieve success? Third Level The third level of due diligence answers the question: What can the investor do to help the startup succeed? Nothing is more frustrating than seeing a startup failing and not being able to do much about it due to a lack of knowledge of the industry, the market, or the technology. If you can’t help the startup, it’s questionable that it’s a good investment for the angel.  I’ve never invested in a startup that, at some point, didn’t need help. On the other hand, if I can help the startup through connections, mentorship, or team building, then it may be a good fit. Read More TEN Capital Education Here Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

    Beyond Due Diligence

    May 19, 2022

    2min read Completing your due diligence with care before investing in a startup is an indisputable rule in the world of investing. However, to ensure that your deal is going to work out as close to your expectations as possible, you need to go beyond due diligence. In today’s article, we will discuss how to do exactly that using three core strategies: finding the full answer, spotting red flags, and scanning for what isn’t being said in the startup’s pitch. Reaching the Full Answer The first strategy is to find the full answer. In talking with startups, I find the investor must always probe for the final answer. A single question rarely reveals the full answer. I spoke with a startup recently who said, “We’re raising a million dollars and we have raised half of it already.” On the surface, it sounded like they had $500K invested in the business. So, I asked, “You have $500K in the bank already from your raise?” They responded, “Well, not exactly. We have several investors telling us they are interested in investing.” After four more questions, it came out that they had $100K in the bank and around $300K in soft-circled commitments. It’s good progress, but not exactly the half a million we heard at the beginning. Never take the first statement as the final answer. It takes at least 5 questions to get down to the real answer, and as an investor, you want to know the real answer. Spotting Red Flags The second strategy is actively scanning for red flags. These indicate something is wrong. Some red flags to beware of include: The founders are not investing any of their own money into the business.  The cap table is crowded with many small investors, meaning the earlier funding was a challenge. The team is incomplete. Either the solo founder wears too many hats, or everyone is a tech developer, meaning no one is outselling the product. The team lacks awareness of the industry, especially the regulatory side. There are no KPIs or operational metrics to review. Plans are generic and lack specific customer names or revenue amounts. They have loads of debt, and previous investors have no further interest in funding or supporting the business. The business appears to be set up to be the CEO’s lifestyle business. They offer hockey-stick projections with no apparent supporting evidence. There’s no board of advisors or directors. The team you see is what you will get. The financials use year 1, and year-2 naming, rather than actual years. What Isn’t Being Said In due diligence, what isn’t being said or shared is as important as what is. When a startup pitches its idea, you should be skeptical of founders that don’t mention potential risks or discuss their experience in the industry or their traction. Here are other key items the investor should look for in a startup’s pitch: what needs to be done and what risks exist in the deal market size and growth rates reflect the market the team is pursuing financial projections show the startup’s understanding of their business information about the founding team including industry experience, commitment to the startup, and no criminal records If a startup leaves any of this information out, it may be an indicator that something is wrong. Use the five-question rule from above to find the true answer. Read more on the TEN Capital eGuide: Due Diligence and Leading the Deal Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

    Doing Your Due Diligence

    November 20, 2021

    2 min read There are several approaches to due diligence. The most common is the “Thorough Approach” in which you review each aspect of the business and focus on the top items. The main areas to cover in due diligence are the market and the team. In this article, we will cover how to diligence the market, how to diligence the team, and what key documents you should have in your due diligence box in following the thorough approach. How To Diligence the Market When implementing due diligence in a startup, the size of the market is a key question. The larger the market, the greater the growth potential of the startup. There’s rarely a need to pay for research as so much exists on the web. In searching the web, you’ll find research reports giving market sizes, trends, analysis, and more. The key here is to analyze the market at three levels. The first is Total Available Market which is anyone the company could ever sell to. The second is the Serviceable Market which is the target market the company wants to serve. The third is the Beachhead Market, which is the first niche the company will pursue. Ideally, this is a small but well-defined group of companies that fit the startup’s current product. The startup should have some interactions with the companies in the Beachhead market already. How To Diligence the Team In doing diligence as a startup, the team is the most critical factor in the process. For implementing diligence in the team, first, review the resumes of those who are on the team or plan to join when funding becomes available. Next, look for domain knowledge. Who has it, and how current is it? After that, look for complementary skills. Is there someone who has sales skills and will spend their time selling the product? Is there someone who is going to build the product and will manage either an internal development team or an external one? Outsourcing the product development with no one actively managing it is a recipe for disaster. Next, look at how long the team has worked together if at all. Ideally, the team has some experience working with each other. The more the better. Finally, look at completeness. Many successful teams follow the Designer, the Hacker, and the Hustler formula. The Designer knows the customer problem and plans the product development, including how it will be monetized and promoted. The Hacker is the developer who builds the product, and the Hustler is the one who sells it. Due Diligence Box Key Documents You’ll need to gather your basic company documents for investors to review. In preparing a due diligence box also called a data room, the following are basic documents to include: Income statement Balance Sheet Three- to five-year financial forecast Cap Table including shares outstanding Entity filings (LLC, C-Corp, and Articles of Incorporation) Intellectual Property filings including patents, trademarks, etc. C-level team resumes There may be other documents you may need to add based on your situation. Feel free to try out our calculators and contact us if you would like to discuss your fundraise: http://staging.startupfundingespresso.com/calculators/ Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group.

    The Due Diligence Box

    March 30, 2021

    2 min read The Due Diligence Box: What Is It and How to Prepare One. After an investor expresses interest in funding your deal, the first question to ask is: “What is your diligence process?” Having a due diligence box with the standard documents helps a great deal. It shows you are prepared and typically only requires minor additions for each investor. The Due Diligence Process While most diligence processes follow the same format of document review and analysis with a round of follow-up questions, each investor has their own start time, timeframe of work, and specific documents they look for. It’s best to ask for their process, and then follow along with it. If the investor does not have a specific process, then presenting the due diligence box should be enough. For new investors who are not sure what to do, you can offer to walk them through the diligence document by showing them all the relevant information. It can be helpful to contact the associate or analyst who will be doing the detailed work and open a direct line of communication with them. By building a rapport you may gain the option of contacting them directly for progress status and updates. You can also position your calls as opportunities to answer questions and to help the associate find specific pieces of information. Investors are busy and can get drawn away by other deals, so it’s important to be timely with your follow-up. Having a due diligence box with the standard documents helps a great deal with this. It shows you are prepared, and typically only requires minor additions for each investor. The Due Diligence Box In preparing a due diligence box, also called a data room, there are basic documents to include. These documents consist of: Income Statement and Balance Sheet 3-5-year Financial Forecast Cap Table- including shares outstanding Entity Filings including Articles of Incorporation Intellectual Property Filings- including patents, trademarks, etc. C-level Team Resumes There may be other documents you may need to add based on your situation. Reps and Warranties Contract One document that is helpful but not required to include in the due diligence box is a reps and warranties contract. Information taken in by investors about a startup’s product, team, financials, revenue and more can change rapidly during the startup phase of the business. One method of assuring the investor the information provided is true and accurate is for the startup to sign a Reps and Warranties contract. This is often tied to the diligence provided. This contract states that everything provided in the diligence is true and accurate and that no material has been omitted. If it later turns out that there’s a material difference between the business and the diligence, then the Reps and Warranties contract provides legal recourse to the investor for recovering any damages. For example, if the financial statements indicate there’s no debt in the business, then the investor assumes the business is debt-free. If the startup does in fact have debt, then the investor can take legal action against them. Some investors demand such a contract to be signed to ensure they have the full picture of the business. Signing a Reps and Warranties Contract can strengthen a startup’s case on the diligence provided. Read more in the TEN Capital eGuide: http://staging.startupfundingespresso.com/due-diligence-and-leading-the-deal/ Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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