Part 1 in the “Navigating Diligence: The Bling Capital Playbook” Series

Why We’re Writing This Diligence Guide for Startup Fundraising

Raising money is a pivotal moment for startups. It means finding investors who believe in your vision—and whom you trust enough to help you build the business.

But once talks with VCs get serious, most founders ask the same question: “What exactly do I need to prepare for diligence?”

We built this series as a practical cheat sheet to guide you through diligence, whether it’s with Bling Capital or any other investor. Each post covers a common diligence exercise, explaining clearly:

• What investors are really asking
• Why the question matters and how to address it
• How your answer sharpens your overall plan (together, all the diligence exercises)

Incidentally, these materials aren’t just useful for diligence during fundraising—they’re the same ones you’ll use for company-building too.

Why Investor Diligence Matters for Your Startup

Many founders mistakenly assume diligence begins after receiving a term sheet. Actually, diligence kicks off the moment a VC expresses serious interest.

Diligence isn’t a test to pass or boxes to check. Instead, diligence helps investors:

• Understand what collaborating with you will be like
• Align on a realistic and believable post-investment plan

And just as importantly, it helps you assess whether this investor is the right partner for you.

Good diligence creates clarity around:

• What exactly are we building?
• What’s our next major milestone, and what risks might stop us?
• Do we see the same future for the company?

What Diligence Looks Like at Different Stages

Pre-seed Stage Diligence

Diligence is light. There’s not much data to comb through, so investors mainly focus on the story, the founders, the idea, market size, and your goals for the round. Early traction helps but isn’t the main point; everyone knows the product will probably evolve significantly. At this stage, investors are mainly trying to understand “the initial shape of the company”—and what it wants to become—and whether founders see the same “shape” and are similarly aligned.

Seed Stage Diligence

Still largely about the founders and story, but now investors also check early data. Seed diligence is about proving the “base case”—i.e. the problem is real, the solution resonates, and customers are starting to stick around. Expect questions on customer engagement and usage patterns, retention, initial go-to-market, how you’ve segmented the market, and core team hiring plan. Investors are asking themselves: Given this early traction and capital, can we “build a machine” that prints new customers or revenue.

Series A Diligence

Now investors want proof points. Series A diligence is about proving the “inductive case”—i.e., not only are customers using and paying for the product, but they’re sticking around and expanding. Investors will want to see what’s working now can scale: they’ll review data to understand product-market fit, scalable growth potential, unit economics, your hiring strategy, and your repeatable growth playbook. Investors are looking to understand that what you’re doing now works, it’s generalizable, and can continue to grow over time. Think of this as: we have proven “the machine is working” and now we’re using capital to turn this into “a machine that prints out more machines”.

The Primary Goal of Investor Diligence for Startups

The primary goal is straightforward:

Both founders and investors should align on a believable plan to reach the company’s next milestone towards becoming a venture-scale business.

This alignment usually involves clear answers across several dimensions:

Product / Market

• What’s being built, and for whom, and what problem is being solved?
• Why is it significantly (ideally 10x) better than existing alternatives?

Scale / Opportunity

• How big can this company realistically get with reasonable assumptions on market penetration?
• Do we agree on the size and shape of the market opportunity?

Plan / Resources

• What milestones are critical for reaching the next inflection point?
• What resources—product roadmap, team, GTM strategy, and capital—are required?
• How does this stage prepare us for subsequent funding rounds?

Diligence, when done right, isn’t just about answers—it’s about building shared conviction before deciding to partner.

What’s Ahead in This Series

Below are the specific diligence exercises we most commonly see. Think of these posts as practical building blocks for creating clarity and alignment, both with investors and within your own team.

Diligence Exercise	What We’ll Cover
Post 1. Aligning on the Plan (this post)	Why this series exists, what diligence looks like at each stage, and how to set goals for the process.
Post 2. Hair-on-Fire Problem + Why 10× Better	How to define who you’re selling to, what “hair on fire” problem they have, what they do today, what they will do with you instead, and why this is 10x better.
Post 3. Market Sizing – “is this venture scale?” and why does it matter?	How we think about market size and why it’s critical to venture outcomes. Aligns on whether there’s a path to a $1B+ company—based on how many customers exist, what they’ll pay, and how big the market could become.
Post 4. Hiring Plan – “Who should you hire when?”	Aligning on what the team needs to achieve product and GTM goals (and if fundraising, right-sizing the raise).
Post 5. Financial Model	What we look for in a model: revenue, costs, burn, and how it ties to the round’s goals.
Post 6. Product Roadmap	What you plan to build, how it connects to the value proposition, and the customer journey.
Post 7. Cohort Analysis and sales payback (“do our unit economics work?”)	How we assess product-market fit and customer durability through cohorts.

How Founders Should Think About Investor Diligence

• Skipping diligence can be risky. For pre-seed, diligence should be light. But if you are a seed stage company with $1M in ARR, or series A company, an investor who skips diligence all together is not necessarily better—it could even be a flag. Sometimes the investors already know you, know the space very well, or they’re just moving fast because of your fundraising round’s dynamics. But sometimes they’re guessing, making incorrect assumptions on your goals and vision, or simply cannot provide helpful feedback.
• Good questions predict good partnerships. Investors asking thoughtful questions early are likely to be more supportive when challenges arise later. If a firm isn’t asking questions, how do you know you’re aligned? What happens if you have different plans?
• Effective diligence sharpens your business. Seek investors who challenge your thinking constructively and make your plans stronger. The best partners will help you see around corners and get ahead of the problems you might face as you scale.

Key Takeaways on Startup Diligence for Founders

• Alignment beats mere approval. Diligence ensures both sides truly understand and agree on how they’ll work together.
• Clarity matters more than polish. The goal isn’t “passing a test”. Investors prefer clearly articulated, evolving plans over beautifully presented yet superficial materials.
• Our templates are starting points. Use our provided templates to accelerate your diligence process—but always adapt them to fit your unique context and story.

Next Post: Hair-on-Fire Problem and Why Is Your Solution 10x Better

In the next post, we’ll dig into how we think about clearly defining who your customer is, what hair on fire problem you’re solving, and how it’s 10x better.

We’ll cover:

• The underlying question and why it matters for every subsequent diligence exercise.
• Our shared method and framework—step by step, with a template
• A simple template you can use to create your own “hair-on-fire + 10x better” story

Thanks to Gokul Rajaram, Melody Koh, Jared Fliesler, Jason Krikorian, Nevin Raj, Andrew Bocskocsky, Tyler Maloney, and Brandon Terry for reading drafts of this.

Venture investors will often ask a founder the potential size of their startup. A core part of answering this question has to do with market size, commonly known as total addressable market (or “TAM”).

The post below will outline

1. why venture investors care about TAM (VCs typically look for “fund returners”)
2. common mistakes founders make when sizing their market(s) including examples (over general top-down estimates, non-specific segmentation, unrealistic assumptions)
3. the Bling Capital approach (bottoms-up segmentation-based approach)

Why is market sizing important?

Our goal with market sizing is to understand how big your startup can get if things go well.

Here is a sample mad libs format:

• To get to $100M in gross profit per year, we need X customers paying us $Y per year, where X represents this K% of the market of prospective customers. There are a total of (X / K%) such customers in the US.
• The primary characteristics when doing a segmentation of customers are A, B, C.

Venture Capital investors often ask themselves: Is this startup’s market sufficiently large to support a “venture scale” return?

To be considered “venture scale”, a lead investor’s equity in a startup (say 10% at the seed stage) has to have the potential to return their fund. Therefore, if a seed fund is $100M, an investor generally wants to see a path for any portfolio companies to become a $1B enterprise value company if things go well.

What happens if you’re seeking to raise venture capital, yet a venture investor believes your TAM is too small?

1. If an investor believes this during your fundraising process (rightly or wrongly), they may pass with the reason being “not enough conviction on the market”.
2. If discovered after investing that the market is indeed too small, they may influence founders to strategically focus on a venture scale outcome which will naturally be more challenging in a smaller market.

As a startup founder, putting together a clear and concise “back-of-envelope” market sizing that articulates a path to $100M and $500M, respectively, in gross profit will not only help avoid scenarios above but will also be helpful to driving business strategy and go to market approach. We use $100M and $500M as benchmarks for a “venture scale” business and “venture home run” business, respectively. The reason we favor gross profit over revenue for this exercise is because different markets and business models have varying gross margins, and gross profit better accounts for these differences.

Common Mistakes

Many market-sizing approaches result in numbers that may not resemble the reality of a startup’s current or even future potential market size. Below are four common mistakes we often see founders make when talking about market sizing, and we’ll outline each with relevant examples using two of our portfolio companies: Lyft (Marketplace) and Lucidchart (SaaS). These examples build on each other.

• Lyft is one of the leading ride share companies in the U.S. and is often evaluated as a marketplace.
• Lucidchart is a growth stage SaaS company for diagramming, data visualization and collaboration.

Mistake 1: Focusing on top-down total market size alone

Why it doesn’t work: Too generic, often doesn’t display a deep understanding of the market for this specific product

Example 1a: Lyft	Example 1b: LucidChart’s market
“Lyft’s market size (“TAM”) is equal to the total spend on taxis and limos in the United States.”	“The total spend on cloud tools is $X billion and Microsoft Vizio’s revenues are $Y millions, so our TAM is $x+$y.”
Better Approach: A bottoms-up approach that includes (1) the existing market (2) how Lyft’s approach (convenience, price, customer experience) would expand the current market (3) broader market trends (in this case, gig economy, proliferation of mobile devices) that would expand the current market.	Better Approach: A bottoms up approach that includes (1) your insight into the broader market trend (in this case, the # of SMEs in 2010 will 100x over the next 10 years), (2) your buyer persona, and (3) how Lucidchart is dramatically improving a free product with a product users are willing to pay for (SaaS model).

Mistake 2: Not segmenting your bottoms-up market sizing analysis

Why it doesn’t work: Omits go to market (GTM) strategy

Example 2a: Lyft	Example 2b: LucidChart’s market
“There are XX millions of people who can use Lyft. If they spend $Y on rides per year, then our TAM is $XY millions”.	“There are XX millions of people who could use LucidChart. If they pay us $Y per year, then our total addressable market is $XY millions.”
Better Approach: Segment your markets by city size and key characteristics: Tier 1 = large + urban like LA Tier 2 = mid-size+suburban like Dallas Tier 3 = smaller + more rural like Tulsa Then show how many cities exist per segment and provide reasonable assumptions for average total GMV per tier. [1]	Better Approach: Segment your customers based on buyer persona. If the buyer is a company, you should segment the customer by company size: Enterprise: 10K+ employees like Google Midmarket: 1k-10k employees like Datadog SME: <100 employees such as a startup Then show how many companies exist per segment and provide reasonable assumptions for average ACV (annual contract value) per segment. [2]

Mistake 3: Static growth and unrealistic penetration numbers

Why it doesn’t work: Doesn’t illustrate your path toward more revenue ($10M, $100M, $500M) with reasonable market penetration (e.g., 1% vs 50%)

Example 3a: Lyft	Example 3b: LucidChart’s market
“The TAM for Tier 1, Tier 2, and Tier 3 segments is $y. At 75% market penetration we will generate $xB in revenue.”	“The TAM for Enterprise+, Enterprise, and SME segments is $y. At 75% market penetration we will generate $xB in revenue.”
Better Approach: Articulate your launch city and reasonable penetration for that launch city. Use that “launch playbook” to articulate expansion to X additional cities that look like your launch city until you reach $100M and then $500M in revenue with reasonable penetration rates (e.g., 5% per city). The idea is to “tell the story” of how your market and business model will unfold over time. [3]	Better Approach: Articulate your ideal buyer and in which segments those buyers exist. Then, articulate reasonable penetration assumptions for those segments, and how you will expand over time until you reach $100M and $500M in revenue. The idea is to “tell the story” of how your market and business model will unfold over time (e.g., # SMEs 10x in 10 years). [4] [5]

Mistake 4: Using top-line revenue or GMV instead of Gross Profit

Why it doesn’t work: Top-line revenue or GMV leaves out the cost of delivering revenue and over inflates market size

Example 4a: Lyft	Example 4b: LucidChart’s market
We need x Tier 1 cities with 2% market penetration each to hit $100M in GMV, and x Tier 1 cities and x Tier 2 cities with 1% market penetration to hit $500M in GMV.	We need x enterprise customers, and x SME customers paying us $y ACV, including one-time fees, with 10% market penetration to hit $100M in ARR. We expect ACV to 2x in 5 years and SMEs to 100x in 10 years so our market penetration in 10 years would be 0.1%.
Better Approach: Calculate Lyft’s take rate on the GMV as revenue—GMV alone doesn’t reflect the value the company is capturing. Then, subtract the cost of delivering that revenue to calculate Lyft’s gross profit.	Better Approach: Many SaaS business models do not incur a lot of COGS. However, there are some mistakes to correct such as not breaking out annual recurring revenue vs. one-time revenue in your ACV and not including costs such as payment processing, customer support, hosting, etc.

The Bling Cap Approach

At Bling Capital, we believe your market sizing and narrative are interconnected. The exercise we often go through with founders are as follows:

What do we need to believe for ‘Startup A’ to get to $100M and $500M, respectively, in gross profit?

1. How many customers (segmented) will you have and how much will they be paying you (annually)?
2. What is the margin on your revenue (ideally by customer segment )?
3. What percentage of the market does that represent? (essentially market share)*

Using the examples above, let’s go through market sizing for Lucidchart.

What do we need to believe for Lucidchart to get to $100M and $500M in gross profit?

1. We segmented buyers based on company size. We have three tiers of buyers:
   a. Tier 1 (Enterprise+) = 1000+ employee companies
   b. Tier 2 (Enterprise) = 100-1000 employee companies
   c. Tier 3 (SME) = 1-100 employee companies
2. Across all segments, there are 493K total companies in the US but we will focus on the 470K SME and Enterprise companies:
   a. Tier 2: 75K companies (15%) are between 100-1000 employees
   b. Tier 3: 395K companies (80%) are between 10-100 employees
3. We have a SaaS freemium business model with 95% gross margins across segments. Our GTM is a product-led growth, with expansion driven by a sales organization.
   a. Our goal average ACV for Tier 2 is $50K ($10K - $100K range), which is an average of 200 licenses per company per year ($250/year/license).
   b. Our goal average ACV for Tier 3 is $5K ($100-$20K range), which is an average of 50 licenses per company per year ($100/year).
4. Our immediate revenue opportunity with our current product is $5.6B and our path to $100M is clear: We need 2K Tier 2 customers paying us $50K per year (~2.6% of market), or 20K Tier 3 customers paying us $5K per year (~5% of market).
   a. Tier 2: $3.7B TAM
   b. Tier 3 $1.9B TAM
5. Over time, as we launch more features (e.g., SSO), we will roll out to Tier 1 (Enterprise +) and implement playbooks to increase ACV across all segments. With just ~14% market penetration in this $9B TAM, we can reach $500M per year.
   a. Tier 1: 23K * $150K = $3.4B (3.3K companies, or ~14%)
   b. Tier 2: 75K * $50K = $3.7B (10K companies, or ~12.5%)
   c. Tier 3: 395K * $5K = $1.9B (100K companies, or ~25%)
6. As extra credit, further segmenting their customer tiers based on actual or projected data points (e.g., engineering, product, design, marketing teams are core users for Lucidchart) shows an even deeper understanding of your market.

Apply It

When going through a market sizing exercise with entrepreneurs, we usually start with asking questions. These questions are meant to help founders segment their customers, understand and assess reasonableness of their own assumptions, and to sanity check whether the story makes sense – all of which will lead to inputs for building a venture scale business.

Let’s do this together: Create a Google Doc and answer the following questions:

• Who is the customer (or title of customer, or buyer), today AND tomorrow? These can be customers you serve today or, if you have not launched, customers you intend to serve.
• What are the segments in your market where this customer exists? Divide your market into segments and define them.
• How many of these customers exist per segment? What are the number of customers that are model customers in each segment? Does that change over time?
• What were they doing before?
• What is the hair on fire problem?
• What are they doing now?
• How is this 10x better?
• How do you get them to pay you?
• How much are they paying you / will they pay you? This should be your GMV, average order value (AOV), or average contract value (ACV) per customer per year.
• What is the cost of delivering that revenue? Does that change over time?
• What is the gross profit total for each segment? Does that change over time?
• How many customers do you need to get to $100M and $500M in gross profit, and what percentage of the market (per segment) does that represent?
• Then, show the path to do that (In one sentence, clearly summarize how big of a revenue opportunity we believe this to be for us in Year 1, 2, 3, 4, 5). How many customers in your market do you already have as customers or are currently talking to? How do you plan to get your first 10-100, 100-1000 customers (or 10x, 100x or 1000x your current customer base) at the current or future GMV, AOV, ACV?

With the answers to these questions, you should have inputs for your “business formula”, using our Market Sizing Template. The outputs are X Y K A B C in the mad libs format:

• To get to $100M in gross profit per year, we need X customers paying us $Y per year, where X represents this K% of the market of prospective customers. There are a total of (X / K%) such customers in the US.
• The primary characteristics when doing a segmentation of customers are A, B, C.

We’re excited to see what you produce!

Final Takeaway

Market sizing helps you create a holistic and compelling narrative about your business, one that will resonate with investors and help you sharpen how you talk and think about your product evolution. Taking the time to deeply evaluate your market size with a solid methodology can be a key part of crafting a strong narrative.

Footnotes

[1] Consider these questions when segmenting your markets for a location-based GTM strategy: Is it by city or metro area? What is the characteristic of cities in each segment? How many cities exist in each segment? How much market penetration do you think you can realistically achieve in every market? When do you consider a city “activated” or “unlocked”?What is the TAM per city? How many cities in each segment do we need to unlock in order to achieve $100M and $500M in gross profit?

[2] Consider these questions when segmenting your customers for a subscription product: Do you sell top-down to businesses or through a bottoms-up product-led-growth (PLG) motion? Who is your ideal customer profile? Is it different from the buyer? At what size company does your buyer differ? What is the size of the company by number of employees? Can we organize these companies by segment? How many companies exist per segment? How much will they pay us and does it differ by segment? How will sales and marketing differ per segment? How much market penetration do you think you can realistically achieve in every logo per segment to achieve $100M and $500M in gross profit?

[3] Consider these questions when thinking about location-based GTM expansion and penetration: Which tier(s) will you focus on first? What is the hypothetical cost to launch a model city in each tier? How long would it take to hypothetically payback a model city in each tier? What is the reasonable goal penetration per model city in each tier? How many cities in each tier do you need to achieve $100M and $500M in gross profit? How do you anticipate growth over the next few years? Is this a small or large percentage of the total market? Is there room for more than one winner?

[4] Consider these questions when thinking about subscription GTM expansion and penetration: Which segment(s) will you focus on first? Will you be using a sales team and if so for which segments? How will sales and marketing channels differ per segment? What is the hypothetical cost to close a model logo in each segment? How long would it take to hypothetically payback a model logo in each segment? What is the goal penetration per model logo in each segment (e.g., x employees / seats per logo)? What is the path to achieving $100M and $500M in gross profit? How do you anticipate growth over the next few years towards these revenue goals? is this a small or large percentage of the total market? Is there room for more than one winner?

[5] Consider these segmentations for subscription businesses: Segment customers into logo size segments of SME (<10 employees), Enterprise (11-1000 employees), and Enterprise + (1000+ employees). Then, each segment’s logos should be assigned an ACV based on some reasonable assumptions; calculate total ACV per segment type as $xy, with x being the number of companies in the segment.