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Due Diligence

Due Diligence

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Due Diligence

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  1. Due Diligence

    Texas Open Angel Network August 28, 2012 Kevin Castello
  2. Definition of 'Due Diligence - DD' 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.Read More: http://www.investopedia.com/terms/d/duediligence.asp#ixzz24qNuxEE3
  3. Practical DD Definition Whatever the investor does prior to making an investment decision.
  4. Does DD make a difference? Kaufmann Foundation 2007 Study “Return to Angel Investors in Groups” by Dr. Rob Wiltbank Return multiple for DD < 20 hours 1.1x in 3.4 years Return multiple for DD >20 hours 5.9x in 4.1 years
  5. 2009 Follow-up Study in UK by Dr. Wiltbank Returns <20 Hours >20 Hours < 1X 60% 40% 1X-5X 30% 37% 5X-10X 5% 8% 10X-30X 0% 12% >30X 5% 3% (all percentages are approximates)
  6. DD Process Overview Quantitative Analysis Qualitative Analysis Management Team Analysis Additional “Deep Dive” Analysis Term sheet negotiation if applicable
  7. Quantitative Analysis Documentation review that supports the authenticity of the startup Duration: days to weeks mainly dependent upon entrepreneur responsiveness Deliverable: Completed comprehensive checklist
  8. Qualitative Analysis Angels and subject matter experts to gather more details of the business through a question and answer session with the company’s management team. Duration: days to weeks Deliverable: Report of findings and opinions of a subject matter expert
  9. Management Team Analysis Discovering the strengths and weaknesses of the management team and begin building an Advisory Board or Board of Directors as applicable Duration: days to weeks Deliverable: Background check reports and report of other findings and recommendations
  10. Deep Dive Analysis Fact finding or research if the Angels feel that additional information is necessary to validate the investment Duration: days to weeks Deliverable: Report with findings and recommendations
  11. Term Sheet & Closing Duration: days to weeks Deliverable: Term sheet Closing Documents & Funding Event
  12. Questions & Discussion