1. 1. 1 Investor Due Diligence: Getting Your Ducks in a Row #DueDiligence SEEDCHANGE
2. 2. 2 Startups face a huge burden in todays economy, often having to choose between funneling resources toward creating their goods and services or managing the often complex accounting, tax and financial strategy planning necessary to run a successful business. ~ David Ehrenberg, Founder and CEO Early Growth Financial Services
3. 3. Kevin Smith Founder and CEO SEEDCHANGE
4. 4. Investor Due Diligence NOT just the final hoop 4www.seedchange.com www.earlygrowthfinancialservices.com
5. 5. Before you even think about reaching out to investors, button up 5www.seedchange.com www.earlygrowthfinancialservices.com Business entity Delaware C Corp Business model Scrubbed financials Thoughtful projections Cap table prepared and clean Employee agreements Partner agreements Customer agreements IP
6. 6. 6www.seedchange.com www.earlygrowthfinancialservices.com Gloves are off On-site All employees Vendors Customers Founder background check Due diligence begins
7. 7. 7www.seedchange.com www.earlygrowthfinancialservices.com
8. 8. Internal communication 8www.seedchange.com www.earlygrowthfinancialservices.com No surprises Answer questions Clearly explain pros and cons of investment Bringing team up-to-date Document business processes Integrated team view
9. 9. What do investors look at? 9www.seedchange.com www.earlygrowthfinancialservices.com
10. 10. Personnel review 10www.seedchange.com www.earlygrowthfinancialservices.com Your people are your company, so this is a priority for investors Relationships among founding team members Resolve outstanding team issues
11. 11. Product review 11www.seedchange.com www.earlygrowthfinancialservices.com Product Product road map Customer feedback Quality issues Feature problems Customer service
12. 12. Market analysis 12www.seedchange.com www.earlygrowthfinancialservices.com Opportunity size Validation of initial assessment Trend analysis Barriers to entry / competition
13. 13. T R A C T I O N 13www.seedchange.com www.earlygrowthfinancialservices.com User acquisition rates Sales activity Distribution channels CAC (Customer Acquisition Costs)
14. 14. Full disclosure? 14www.seedchange.com www.earlygrowthfinancialservices.com
15. 15. Documentation: Required Documents Necessary documentation and information for due diligence www.seedchange.com www.earlygrowthfinancialservices.com
16. 16. Corporate Records & Charter Documents Certificate of Incorporation Articles of Incorporation (and amendments) Certificates of Designations, Rights, etc. Bylaws Minutes of directors' and shareholders' meetings Written consents of directors and shareholders www.seedchange.com www.earlygrowthfinancialservices.com
17. 17. Security Issuances Company shareholders and option holders (showing vesting & security exemptions) Outstanding options, warrants, rights Registration rights for company's securities All voting trust instruments, buy-sell agreements, voting proxies or other shareholder agreements All permits and filings regarding securities issued by company www.seedchange.com www.earlygrowthfinancialservices.com
18. 18. Material Agreements Obligations / payments in excess of $10,000 Personal property leases Company liabilities Property / asset related documents Loan or advance documents Employment agreements Insurance policies Employee benefit plans Any judgment by which company is bound Form of Proprietary Information and Invention Agreements www.seedchange.com www.earlygrowthfinancialservices.com
19. 19. Intellectual Property Foreign and domestic patents and patent applications Trademarks, trade names, service marks, domain names or copyrights Proprietary processes Licensing agreements (to and from) Third-party correspondence regarding potential infringement of IP rights www.seedchange.com www.earlygrowthfinancialservices.com
20. 20. Disputes and Litigation Pending action, suit, proceeding, investigation Allegations of company's infringement of proprietary rights of others Labor agreements or actions www.seedchange.com www.earlygrowthfinancialservices.com
21. 21. Other Essential Documentation p21 Securities or ownership interests in other companies Certificates of qualification from all states or foreign countries in which company is qualified to do business All licenses, permits or government authorization Companys bank accounts, lines of credit, etc. Current or past officers, directors, or key employees who own direct beneficial interest in any competitor Powers of attorney executed by company www.seedchange.com www.earlygrowthfinancialservices.com
22. 22. Q&A and Thank You! www.seedchange.com info@seedchange.com 1.877.711.9883 @seedchange www.earlygrowthfinancialservices.com contact@earlygrowthfinancialservices.com 415.234.3437 @EarlyGrowthFS SEEDCHANGE