This is the second in a series of blog entries intended to give advice to entrepreneurs who approach Qi3 Ventures.
Think about it from my perspective. It’s much easier to invest in a proposition if you have already thought through all of the questions that people will ask you, and prepare concise written material to release to potential investors who show serious interest. Your preparation will thus look professional, and save me time scratching my head.
In a past investment, I was impressed that the entire due diligence pack was available for download from a secure web site. This made the investment process so much easier, and gave the immediate impression of competence and preparedness. (They still went bust, but that was technology failure rather than lack of investment readiness).
The obvious checklist of due diligence information includes:
- Corporate structure, shareholdings, articles of association
- Past financial accounts and up to date management accounts
- Service Agreements with key staff
- Evidence of contracts and grants in place
- Schedule of Intellectual Property with status
- External market assessment
- External technical assessment
- External IP assessment
- Appendices to the Business Plan, showing how assertions were arrived at
A recent due diligence pack also included the directors’ responses to the external assessments, so I was able to feel a conversation going on and understand more.
In contrast, it’s amazing how some entrepreneurs seem to expect the potential investor to dig out all of this information themselves, and not get bored or give up in the process. Due diligence should be a matter of reducing risk and confirming one’s interest in a business.
This may seem daunting from the entrepreneur’s perspective. But I can assure you that a well prepared due diligence pack speeds up the evaluation process and leaves a good impression.