Download - HatchConf Due Diligence
DUE DILI
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WHAT IS DUE DILIGENCE?
Investopedia
1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to a sale.
2. Generally, due diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.
WHAT DOES THAT MEAN?
The 70-30 Rule*
70%: Intuition (aka: gut). Can they do it? Will they do it?
30%: Facts (aka: prove it): What have you done? How do you know?
*Subjective in all cases and different in a sale
WHEN IS IT APPLICABLE?
Examples and Personal Experience
Investment
Loan Guarantee
Grants
Licensing Agreement
Strategic Partnership/Founding Members
Merger
Acquisition/Sale
HOW IT WORKS
What They May Be Thinking
Private Investor: Can this venture make me money? Can this guy do it?
Angel Investor: Interesting concept. I like this CEO. Can I make money?
Committee: Do they have enough to go before our investor group?
Consultant (scrubs deals): Why should I believe you? Who are you?
Partner: Will they deliver? Can we work together? Can we get more sales?
Founder: Are they trustworthy? Who is leading?
Buyer: Is this going to propel my business forward? Is this added value?
Entrepreneur: Is it enough? Can I make the business case?
ANGEL INVESTMENT EXAMPLE
Sub-Committee
15 min pitch5-10 min q/a
Who you know/Champion.
ContactCoherent, clear, well-
written exec summary or business
planWho you know/ED.
Membership15 min pitch5-10 min q/a
Who you know/Champion.
DUE DILIGENCE
Team
AssignmentReports
Board Membership
Term SheetRisk AssessmentMembership Vote
NO MATTER WHAT
As an entrepreneur, your fiduciary responsibility is to maximize wealth for your shareholders. In good faith, you must be on your game and be prepared.
Have confidence (not arrogance).
DOCUMENTATION
Version Control:
Governance: formation papers, operating agreement/by-laws, cap table, board notes, lawsuits (current or pending)
Intellectual Property: applications, process documents, awards (trademarks, copyrights, patents)
Sales: customer list, pipeline, projections/actual, demos/presentations, client testimonials
Investment package: business plan, financials, PPM, deck, qualified investor
DOCUMENTATION
Version Control:
Accounting: tax documents, licenses, payments, A/R, A/P, debt, insurance
Human Resources: employee guides, org chart, compensation, bios, hiring/attrition
Operations: suppliers, partners, implementation/fulfillment, service
Product Development: new product pipeline, market need, risk/contingency
DON’T GET IN A BOONDOOGLE!
Don’t waste their time or yours
Do it - Document it
Gives you confidence about the business
Storage
Due diligence e-room: access to various levels of information.
Notebooks: Some like paper.
WHAT DOES THAT MEAN?
The 70-30 Rule*
Leadership. Can they do it? Will they do it?
Facts. What have you done? How do you know?
*Subjective in all cases and different in a sale
Thanks!