A primary goal of Strategic Capital Partners is to ensure that the companies presented to our investors are legitimate investment opportunities. Toward that purpose, we conduct a level of due diligence that covers areas such viability of the business plan, pro forma financials, corporate tax returns, business operations review, customer reviews, key personnel, facilities, ownership, previous formal valuations, previous financing, and any litigation or liens.
If you progress through Pitch Day and the Screening Event, your company will progress to initial due diligence with SCP partners. This occurs the week following the Screening Event, and prior to the Angel Event. We assembled a due diligence list (see below) so entrepreneurs would be able to prepare these materials ahead of time, thereby smoothing the process and increasing chances for success during our process. If you progress through Pitch Day and the Screening Event, one or more SCP partners will meet with you or your team to review due diligence materials.
This process is not designed to replace any due diligence conducted by prospective investors. Based on the outcome of the due diligence process, Strategic Capital Partners may recommend corrective action toward being optimally prepared for capitalization.
Due Diligence Checklist (NOTE: Items in boldface type are required.)
- Be prepared to answer questions such as:
- Does your company have a compelling company story?
- Does your company engage in thorough business planning?
- Do you have a clear understanding of future challenges and how to address them?
- Company formation documents
- Provide annual financial statements of operations since company formation
- Provide copies of contracts entered into by the company
- Describe any legal action(s) the company has been involved with
- Describe any debt the company has incurred
- List team members, their roles, strengths/weaknesses, and summary of their backgrounds.
- Resumes of management team
- Identify management incentives for long term
- Alignment of management with company vision and mission
- Are labor costs appropriate
- Two to three professional references for each member of the management team
- List team needs or functional gaps (e.g., engineering, marketing, salespeople, etc.)
- Effectiveness of back office and customer support
- Job descriptions of key future hires
- Board of Directors and/or Advisory Board and levels of involvement
- Realistic pro forma financials for up to 5 years
- Projections derived via bottom up methodology
- Show attractiveness of margins
- Track record of meeting, exceeding, or falling short of budgets and capital needs
- Review tax situation and any effects on future cash flow
- Adequacy of insurance coverage (e.g., liability, key person, etc.)
Product and Intellectual Property
- Is product a need-to-have, nice-to-have, or luxury?
- Did product creation flow from perceived need, customer demand, or what else?
- Full product description/breakdown
- Patent numbers and IP strategy
- Any issues related to IP
- Status of product development and adequacy of development team
- Future product development pipeline or plans
- Viability of business model
- Market research (e.g., primary research, focus group, etc.) showing clear understanding of market
- Is market large enough and fast growing?
- Clear customer descriptions
- List of existing customers/beta users
- Contact information of customers SCP can call for reference
- Current and historical revenue per customer
- Customer churn rate
- Market Size analysis
- Detailed plan of how you intend to deliver your product to the addressable market/ customers. Does it make sense? How improve?
- Niche or general market targeting
- Is company market leader, first mover, or disruptor? Market share?
- Management understands market dynamic and how to track and measure business progress
- Descriptions of who you need to sell to (e.g., key channel partners, decision makers, etc.)
- Sales cycle timeline and how it compares to competitors
- Testimonials or references from product users
- Competitive analysis (list of direct and indirect competitors)
- Your competitive advantage(s) and ability to win business from competitors
- Contact info of technical experts you’ve worked with (if applicable) who can comment on your technology
- Note barriers to entry and how long they might last
- Company resources compared to competition
Proposed Deal Terms
- Valuation and deal terms, including:
- Summary of prior capital raises with current capitalization table
- Appropriateness of size of current capital round and perceived risks
- Details of current raise
- Reasoning behind current valuation (i.e., attractiveness to investors)
- Use of funds with dollar figures for how and when funds are to be spent
- Cash on hand
- Current burn rate (how much are you spending per month)
Note: all of the above may not be applicable to your company or industry, so work on all that you can. We encourage you to acquire a copy of the book “Venture Deals” by Brad Feld and/or “Angel Investing” by David S. Rose.