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ACS Due Diligence Presentation, Ryan Goral
 

ACS Due Diligence Presentation, Ryan Goral

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ANGEL CAPITAL SUMMIT PRESENTATION: Due Diligence: Your Offensive Line, Your Offensive Weapon. ...

ANGEL CAPITAL SUMMIT PRESENTATION: Due Diligence: Your Offensive Line, Your Offensive Weapon.

This presentation takes the reader through the due diligence process at a high level and sets expectations around what angel investors should be analyzing and exploring when analyzing a potential angel investment. Specifically, it covers how long should an angel investor spend on due diligence, an efficient due diligence process to quickly weed out unattractive deals and what things are analyzed when performing deep due diligence.

Ryan Goral, Founder of Strategic Equity Partners, www.separtners-llc.com

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    ACS Due Diligence Presentation, Ryan Goral ACS Due Diligence Presentation, Ryan Goral Presentation Transcript

    • Due DiligenceYour Offensive Line, Your Offensive Weapon
    • Care and diligence bring luck.Thomas Fuller
    • Why Due Diligence is ImportantReturns are positively correlated to hours spent ondue diligence More than 40 hours = 7.1x returns Less than 20 hours = 1.1x returns
    • What is the right amount of due diligence?• Due Diligence Sweet Spot ~ 40 hours – Not an exact science and depends on the deal• More doesn’t correlate to higher returns – Diminishing returns after initial threshold met• Need to be intentional and deliberate when you perform due diligence – in other words: Know what you are looking for and where to look for it.
    • Due Diligence Process Phase II – Deep DuePhase I – High Level Diligence Sniff Test • Using Mullins Framework • Due Diligence Checklist
    • The Seven Domains of Attractive Opportunities Market Domains Industry DomainsMacro Market Attractiveness Industry AttractivenessLevel Mission, Ability to Aspirations, Execute Propensity on CSFs for Risk Team DomainsMicro Connectedness upLevel and down Value Chain Target Segment Benefits Sustainable Advantage and Attractiveness © 2006 John W. Mullins
    • Due Diligence Phase IManagement Team Produce/Service IP Potential Experience Description Valuation Reasonableness, High-Target Market Clarity Industry Definition Level Financial Summary, Exit Possibilities High-Level Risk Assessment
    • Due Diligence Phase II Product/serviceManagement Team comparison to direct IP research and Analysis and indirect investigation competitive offeringsDetails on the target Valuation comparisons market and break- Competitive matrix and detailed financial down on the with positioning analysis, exit scenarioscompany’s marketing analysis and target ROI plan Detailed risk assessment
    • Due Diligence Product/Service• Features versus benefits• What is the pain being solved?• How does the product/service’s benefits relieve that pain?• Current product/service alternatives?• IP potential?
    • Micro-Market Analysis• What benefits does the offering provide that other solutions don’t?
    • Micro-Market Analysis•What customer pain will the offering resolve?•How strong of an incentive do customers haveto give you their money? –Evidence?•Will customers purchase at a price that worksfor the business model?
    • Micro-Market Analysis• What evidence can you provide to show that your target market has the potential to grow?• Are there other segments that could benefit from a related offering? How do they benefit?• Can you develop capabilities that are transferable from one segment to another?
    • Micro-Market Analysis• How attractive is the micro-market? – Fit market into one of three buckets: • Attractive • Fairly attractive • Not attractive
    • Macro-Market Analysis • Secondary researchHow big is the market? • Number of potential customers • One year growth?How fast has the market • Two year growth? grown historically? • Five year growth? • Next 6 months?How fast will the market • Next 2 years? grow? • Next 5 years?What trends will affect • Economic, demographic, sociocultural, technological, regulatory the market? or natural.
    • Macro-Market Analysis• How attractive is the Macro-Market? – Fit market into one of three buckets: • Attractive • Fairly attractive • Not attractive
    • Industry AnalysisPorter’s Five Forces
    • Industry Analysis Blue Ocean or Bloody Ocean“Blue oceans….denote all the industries not in existence today – theunknown market space, untainted by competition. In blue oceans,demand is created rather than fought over. There is ampleopportunity for growth that is both profitable and rapid.”Bloody Oceans – industry characteristics where companies fightand primarily compete on price.
    • Industry Analysis• How attractive is the Industry? – Fit industry into one of three buckets: • Attractive • Fairly attractive • Not attractive
    • Management Team Execution Risk• Does the management team have the relevant experience necessary to execute the business plan? – Industry Skills? – Technical Skills? – Transferable Skills?• Passion?
    • Management Analysis• How attractive is the Management Team? – Fit into one of three buckets: • Attractive • Fairly attractive • Not attractive
    • Financial Analysis• What is the company’s revenue Model• Are the revenue projections realistic? – Has the founders included the details on ‘how’ they plan on achieving these projections?• Gross, operational and net margins?• Sources and uses of funds?• Projections – Management, downside and upside scenarios? – ROI for investors?
    • Financial Analysis• How attractive are the financial terms? – Fit into one of three buckets: • Attractive • Fairly attractive • Not attractive
    • Risk Assessment• Industry Risk – Changes to Porter’s Five Forces• Market (Product/Service) Risk – Changes in customer preference• Financial Risk – Appropriateness of fund sources and uses• Execution Risk – Management team execution ability
    • Due Diligence Checklist- Attachment
    • Efficient Due Diligence• How can you work with others to share in due diligence tasks? – Angel groups/forums • Deal flow • Collaboration • Leverage investor specialties/experience – Lead investor strategy – Due diligence delegation based on specialties
    • Q&A Ryan Goralwww.separtners-llc.com Twitter: @ryangoral