Investor Due Diligence: Getting Your Ducks in a Row
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This document discusses the importance of investor due diligence for startups seeking funding. It emphasizes the need to have key documents and information in order, such as financial records, capitalization tables, contracts, and intellectual property files. The document outlines the various areas that investors will examine in depth, including personnel, products, market analysis, and business metrics. It provides a checklist of necessary corporate records, security issuances, agreements, intellectual property documents, and other materials required for the due diligence process when investors are evaluating whether to finance a company.
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Investor Due Diligence: Getting Your Ducks in a Row
- 1. 1 Investor Due Diligence: Getting Your Ducks in a Row #DueDiligence SEEDCHANGE
- 2. 2 “Startups face a huge burden in today’s 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. Kevin Smith Founder and CEO SEEDCHANGE
- 4. Investor Due Diligence… NOT just the final hoop 4www.seedchange.com www.earlygrowthfinancialservices.com
- 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. 6www.seedchange.com www.earlygrowthfinancialservices.com • Gloves are off • On-site • All employees • Vendors • Customers • Founder background check Due diligence begins…
- 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. What do investors look at? 9www.seedchange.com www.earlygrowthfinancialservices.com
- 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. Product review 11www.seedchange.com www.earlygrowthfinancialservices.com • Product • Product road map • Customer feedback – Quality issues – Feature problems – Customer service
- 12. Market analysis 12www.seedchange.com www.earlygrowthfinancialservices.com • Opportunity size • Validation of initial assessment • Trend analysis • Barriers to entry / competition
- 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)
- 15. Documentation: Required Documents Necessary documentation and information for due diligence www.seedchange.com www.earlygrowthfinancialservices.com
- 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. 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. 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. 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. 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. 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 • Company’s 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. 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
Editor's Notes
- We offer outsourced financial services to small to mid-sized companies Accounting, CFO, tax, valuation 350+ successful, venture-backed clients nationwide across all industries Ancillary value – connect you to our network of investors, give fundraising advice, etc.