due diligence series: corporate

1 | The SaaS Due Diligence Series - May-Jun-Jul-2021

May

Corporate Strategy

The SaaS Due Diligence Series:Chapter 2During Due Diligence09 Jun 2021


Anna DaviauCFO at Nauta [email protected]

Your hosts today

Xavier SansóPartner at Metrix [email protected]

mailto:[email protected]



We invest early in world-class, capital-efficient, technology-based heroes

Capital efficient models

Sensible use of capital to prove product-market fit and scalability

B2B models & selected B2C plays

03

01 02 Series Seed and Early Series A

Entry ticket €1M-€5M + follow-on

From pre-revenue up to €200k MRR

Pan-European VC

Single global thesis

Operating globally and investing locally

Disruptors of global sectors

Technology-based

Global ambition

Nauta Capital in a nutshell

ProvenApproach to VC


We provide fractional CFO and financial advisory services to great startupsMetrix Partners in a nutshell


The SaaS Due Diligence Series

Chapter 1 Before due diligence

Chapter 2 During due diligence

12 May

Chapter 3After due diligence

09 Jun

07 Jul

Note: time will be 6pm CET


Webinar video here. Presentation slides here.

Key takeaways from Session 1

1.- Charting your investment landscape

• Fundraising is a sales process• Get organized!• Run a managed process• Maintain an investor CRM• Fundraising is NOT a beauty contest! You only

need one YES.

3.- From accounting to the best management accounts

• Adapt your storytelling and be sensitive to context• But VCs do not want to take many risks related to

financial, tax or legal matters. Those matters need to be 100% correct and trustworthy

2.- Key metrics that impact the valuation and how to report them well

• What are the relevant metrics that affect valuation• SaaS-ify your company• Don’t compromise on quality or process

4.- Business planning scenarios• Start with the top line, but with a bottoms-up

approach• Use benchmarks

Before DD

https://www.youtube.com/watch?v=_WZcPF0q-ag

https://nautacapital.com/wp-content/uploads/2021/05/Nauta-Capital-Metrix-Partners-SaaS-DD-Webinar-Slides-Session-1.pdf





12 May


09 Jun

07 Jul



How to execute a major investment or company sale

Outline

Process, process... and process

Closing and reporting

Communication!

The due dil that adds value


(Assuming you are well prepared)

The only two things that matter in deal making

1 2Your ability to generate concurrent interest from different investors, and play them against each other

Calibrating how tough are you going to be with your red lines during the negotiation

Influencing factors

● What is the alternative if the deal does not close - is this the deal of your life?

● How much runway have you got

● “If you want to win, be prepared to lose”


Process from contact to closing and its different endpoints

The due diligence timeline

Investment CommitteePresentation, normally to the fund GP’s constituted in an investment committee, with a sponsor partner. Key topics: upside/downside, fit, proposal, etc.Termsheet issued here

Business reviewReview of each key functional area with the executive in charge and sanity check of all assumptions against the business plan

NegotiationsValuation, share classes, investor rights, conditions precedent, representations and warranties, governance topics, etc.

Initial discussionsHigh level discussions btw CEO, CFO and the prospective investor. Analysis of business plan

Long form documents & executionInvolve the lawyers and other external parties and verify that all data and information provided holds. Formalization (complex depending on country and conditions precedent)


Check the “basic” checklist from here and a deeper dive version from here

Your financial & corporate DD checklist ...

Equity story

Shareholder & BOD minutes and materials

Corporate documents from incorporations

Legal and regulatory

Intellectual property (*)(*) yes, even if you are software

Human resources (management, employees, consultants)

Debt

Key agreements, financials and latest business plan

I

VI

V

VII

VIII

II

III

IV

https://www.cooleygo.com/documents/sample-vc-due-diligence-request-list/

https://www.upcounsel.com/due-diligence-checklist


Have this ready for due diligence

… and a sleevenote from your CFO

Key deliverables• Annual accounts (audited?) for the past 2-3 years• Reconciliation between IFRS and accounting• Most recent management accounts• Plan for the year and long term plan, with use of

funds detail• SaaS metrics (read on)

SaaS metrics II - Client• Orders (C-MRR)• Growth analysis• Renewal-expansion-upsell-downgrade analysis• CAC vs CLTV or CAC payback• Churn analysis (in value and in subscriber count)• Cohorts

SaaS metrics I - Revenue• MRR and ARR retained + new + expansion - churn -

contraction• Subscription numbers• Churn• Contract value (ACV)

Saas metrics III - Marketing performance• Conversion rates• Activation/usage metrics• Sales cycle duration

Financial

DD


A journey together

Communicating to negotiate and close

You Your prospective investor

Does not know youKnows youPreparedUnprepared

deal


Remember: if you don’t have leverage, you will not be able to bend your VC’s arm

The “Hot or Not” framework by

Other VC firms are ready to invest

A proven team with a great track record

Warm intro or You are in a VC hyped category

Outstanding metrics

Your company fits the VC’s investment thesis perfectly

A unique technology or distribution advantage


Remember: if you don’t have leverage, you will not be able to bend your VC’s arm

Turning the tables on your VC

All contact points are relevant and influence the final go-no go decision, but formally some roles at VCs are responsible for decision making (typically GPs) and some others feed into the process

Decision taking

This is determined by the fund bylaws. Depending on the investment, it may require unanimous approval by the Investment Committee, or a majority, or even a partner’s single vote. Find out!

Investment approval process

No problem. Bessemer keeps a great anti-portfolio of all the good companies they passed to invest in. But do ask for feedback that you can iterate in the process. Keep in touch with the VC if you liked them

What if it’s a “NO” ?

Decisions are delayed all the time but your VC should stay in touch with you. Keep sending reminders, if possible with relevant information.No news good news ?

https://www.bvp.com/anti-portfolio


Key topics in a termsheet negotiation

Founders responsibilities Cap table management and ESOP

Call option- they can buy more Use of funds

Put option - you have the right to offer to sell more Lead investor (+co investors)

Representations and warranties Key employees obligations

Information rights Anti dilution

Commercial clauses (ROFN, ROLO, prohibited parties,...)

Round size and valuation

Board composition Liquidation preference

Supermajorities Conversion and participation rights (Tag Along, Drag Along etc)

If corporate

VC

Preferred rights

Roundstructure

BODand Founders


Just a necessary evil before getting your check?

The value-adding external due diligence

● You will bear most, if not all, of the due diligence costs. Whilst the process is exhausting and time consuming, it is also a rare opportunity to focus on “tidying up the house” and using the process as a Segway into the more challenging “post DD” era

● During the process the founder has to stay in control but the execution can be delegated. Ensure you are always filled in about the critical communications and outcomes. You’ll need to own your decisions!

● Insist in getting visibility along the process, debriefing before the report is issued, and receiving the report

● No company is perfect. There are inevitably going to be red flags that you will need to manage, negotiate, address and correct. You just cannot have any red flag that is a showstopper to the deal

● As far as the process is concerned, you need to be transparent. As far as the interpretation of the outcomes is concerned, this is part of a negotiation process so do not be naif.


DD is one of the challenges of the professional services industry. Lots of money wasted due to “revolutionary tax” approach

The value-adding external due diligence

This once in a lifetime moment requires senior partner attention and a team that understands SaaS and that understands your business

Basically done by a junior team with some review by the partner

Methodology is big four/big lawyer based but adapted to how a SaaS VC will steer the business

Methodology brought from an audit/top legal firm background

Focused on materiality and on adding value whilst keeping financial rigor

Focused on compliance an “ticking the box” as a result of which findings are often out of context and worthless

Holistic approach and ability to combine and integrate all views y adopting a “buy side fundraising” role

Independent findings for business-financial-legal-tax due diligence


How to execute a major investment or company sale

Takeaways from today’s session

Process, process... and process

Closing and reporting

Communication!

The due dil that adds value


Anna DaviauCFO at Nauta [email protected]

Thanks & Questions?

Xavier SansóPartner at Metrix [email protected]







12 May


09 Jun

07 Jul


due diligence series: corporate

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