Monthly Archives: June 2014

Preparing for Angel Investment Pitch & Passing the Due Diligence Process

Preparing for Angel Investment Pitch & Passing the Due Diligence Process

The Due Diligence Process is part of the process to obtain “Capital to Transition Ideas into a High Valuation Enterprise.”  The Angel Due Diligence asks questions that, when answered, provides vision and focus to the startup team and greatly increases the likelihood of achieving the team’s exit strategy objectives.

Entrepreneurs need capital from a variety of sources at all stages of evolution. Each source of capital requires different levels of due diligence to qualify a startup for potential investments, mergers and/or acquisitions.  Due Diligence at the Self, Friends and Family levels typically is based on the excitement surrounding the creativity of the idea, and the trust and support in the entrepreneur himself/herself.

By the time the entrepreneur is seeking an Angel investment, the seriousness of the Due Diligence becomes more formal and structured.  By the time the entrepreneur is seeking a Venture Capitalist investment the Due Diligence process is very formal and thorough.  When the entrepreneur is seeking to be acquired and/or go through an Initial Public Offering (IPO) the Due Diligence is formal and regulated, intense and thorough.

Given that the startups we work with have a clearly defined Exit Strategy involving a Merger or Acquisition (96% of the time) or an IPO, the entrepreneur knows that they must be prepared to be scrutinized and go through the Due Diligence process, then preparing for this eventuality starts at the earliest stage.

We are going to review the topics of the Due Diligence process and recommend that the entrepreneur be prepared to provide evidence with and communicate with conviction that they are on track to achieve their Exit Strategy objectives.

Given that all investors have industry and technology specific interests and investment comfort zones, we first identify the innovation and the targeted (i.e. Beachhead Market that is being served) is such that we can focus on and gain the attention of the right investor.  We always look from the perspective of the end-user customer and/or investor.

Why are we in business?

Question

Criteria

Required   Information

What

What   is the Technology and Innovation? Product – Unique   and/or Better Characteristics:

  1.   Feature(s) and
  2.   Function(s) operational improvement

Who

What   is Industry Segment is Being Served by the Innovation? The Ideal   Customer:

  1.   STEEP – Market Realities & Trends
  2.   Beachhead Market Segment
  3.   Total Addressable Market (TAM) for the Follow-On Market   Segments

Why

What   are the End-User Customer Expected Benefits and Why do they want to Buy? Ideal   Customer Want to Buy:

  1.   Promised Operational Improvements
  2.   ImpactàCompelling Reasons   to Buy
  3.   Value Proposition (Economic)

How

How   will the End-User Buy the Product? Customer   Procurement Expectations:

  1.   How become aware of product
  2.   Where to buy
  3.   How Packaged
  4.   How Priced
  5.   How Supported
  6.   How Implemented
  7.   How Serviced

 

Who are we and why invest in us?

Question

Criteria

Required   Information

Core

What   is your startup’s core?
  1.   Intellectual Property Protection (i.e. Patents,   Processes etc.)
  2.   Startup Team (i.e. Expertise, Credentials, Experience, Specialized   Services and Achievements)
  3.   Our Barriers to Entry that have been Overcome
  4.   Access to Markets (Channel Strategic Partnerships etc.)
  5.   Our Financials
  6.   Success Record
  7.   Similar Company Successful Exits (Proof- On Track to   Success)
  8.   Company Values

Exit Strategy

What   is your exit strategy?What   are the growth/ investment stages and when do you expect them to occur?
  1.   Our Growth/Investment stages are…
  2.   We will complete prior stage and ready for next stage…

Business Model

How   do you monetize?How   do you make money?
  1.   Products and Services, Packaging, Pricing, Revenues,   Margins & Profits for each Sales & Services Channel
  2.   Costs of Goods (i.e. critical materials, prototypeàsmall runàvolume   manufacturing)

Cost of Customer Acquisition (COCA)

What   is the cost of sales at all stages of market penetration?
  1.   Ideal Industry/Customer Targeting, Customer Decision   Making Unit… Sales Model Process… Talent Requirements Cost of Customer   Acquisition
  2.   Marketing Operations-Lead Generation/Promotion,   Collateral/Website, Programs, Sales & Sales Support Training
  3.   Sales Operations – Direct & Channel, Sales and   Sales Support Process Model, Credentials, Territories, Quotas, and   Compensation
  4.   Implementation Services
  5.   Maintenance Services

Competition

What   are the end-user alternatives?
  1.   Competitors are there any alternatives?
  2.   Competitor Company and Product Advantages and   Disadvantages
  3.   Our Company and Product Advantages and Disadvantages
  4.   Competitive Position (i.e. Awareness, Consideration,   and De-Facto Standard status)
  5.   Competitor Barriers to Entry

Scalability

Achieve   beachhead dominance, what are the business expansion plans and what is the   Total Addressable Market (TAM) when expansion is achieved?
  1.   Product Plan – Specifics of follow-on growth   directions, markets… TAM

Risk Mitigation

What   are the risks?What   are you doing to mitigate risk?
  1.   STEEP risks and risk mitigation
  2.   Focus on Beachhead Market Segment with
  3.   Minimum Viable Business Product
  4.   Product Plan

Use of Funds

What   are your constraints limiting your ability to go to next step?
  1.   When funded this round will overcome constraints and   position to grow to next stage

Investor

Dear   Investor Why Invest in My Company
  1.   Why is this a solid investment opportunity in your   chosen field
  2.   Why is this a great ROI?
  3.   Call to Investment Action

Where: Product refers to Products and Services

If you would like to learn more about services to assist you in Preparing for the Angel Investment Pitch & Passing the Due Diligence Process call us at 720-352-3407 or email us InvestPitchPrep@prismbusdev.com

If you would like to learn more about services to assist you in Startup Execution call us at 720-352-3407 or email us StartupExecution@prismbusdev.com

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