Here are a number of factors we check during our diligence and underwriting process:
Business Factors
Incorporation - We typically only fund Delaware C-corps
Entity bank account - Has the founder set up a bank account for the business?
Amount spent to date - How much money has gone into the business to date? Has the founder invested some personal capital? Do they have a decent amount of “skin in the game”?
Growth plans - What are the growth plans for this business? Is it a $100 million revenue in 5 years business, or a $2-5 million revenue in 5 years business? Chisos can fund either
Future fundraising - How much money will this business need to raise and what milestones will it need to hit to raise that capital? Will the $50K Chisos investment allow the remaining growth to be funded through sales or will the business need to raise a larger round of capital within 12 months?
Business model / TAM / Industry / Projections - Has the founder put sufficient thought into how this idea will become an actual business? Have they done deep dive research? Have they done customer research? Does the “why now” make sense given the current state of the world?
Traction - Does the business have any traction yet? Any sales or contracts? User sign ups? For Chisos, lack of traction is not a deal-killer, but we do like to know.
Founding team - Who else is working on this business with the founder?
Founder Factors
Founder achievements - What has the founder achieved in their life? Have they started an organization, overcome adversity, triumphed over difficult circumstances? We look for founders with a proven record of accomplishment.
Founder / industry fit: Does the founder have a background in the industry in which they are starting a business? What gives the founder an advantage as they build and grow their business? Do they have the connections in an industry? Are they solving a problem that they are intimately familiar with?
First time founder? - Has the founder attempted to start other businesses? Often, common mistakes can be avoided the second and third time around.
Full time / Part-time - Is the founder working on their business in a full-time or part-time capacity? Chisos can fund either.
Motive: Why start a business? What is driving the founder to start a business? Is there a deep motivation that will keep the founder moving forward during the inevitable tough times?
Chisos ISA and Founder Fit: Why does a Chisos ISA make sense for the founder’s specific situation? Are they looking to preserve their equity? Are they looking for a more flexible option than debt? Is their company not “VC-backable”? Is the company too early for any other type of financing?
Additional Factors
We also look for:
Proven income, typically starting at $75K/year
Credit score, typically Fair or better.
No history of founder declaring bankruptcy
Low Debt-to-income ratio (DTI), typically housing DTI below 30% and total DTI under 40%. Housing DTI = (monthly rent or mortgage payment / gross income). Total DTI = (all required monthly payments, including housing / gross income). The Chisos ISA will add a 10% income share, so we target below 50% for all required monthly payments + the CISA.
None of these factors alone are disqualifying. We take a risk-weighted blend of all factors to produce a “Chisos Score”. This Chisos Score leads our decision making efforts for investment.