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HatchConf Due Diligence
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HatchConf Due Diligence


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    • 1. D
    • 2. WHAT IS DUE DILIGENCE?Investopedia1. 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.
    • 3. WHAT DOES THAT MEAN?The 70-30 Rule*70%: Intuition (aka: gut). Can they do it? Will they do it?30%: Facts (aka: prove it): What have you done? How do you know?*Subjective in all cases and different in a sale
    • 4. WHEN IS IT APPLICABLE?Examples and Personal ExperienceInvestmentLoan GuaranteeGrantsLicensing AgreementStrategic Partnership/Founding MembersMergerAcquisition/Sale
    • 5. HOW IT WORKSWhat They May Be ThinkingPrivate Investor: Can this venture make me money? Can this guy do it?Angel Investor: Interesting concept. I like this CEO. Can I make money?Committee: Do they have enough to go before our investor group?Consultant (scrubs deals): Why should I believe you? Who are you?Partner: Will they deliver? Can we work together? Can we get more sales?Founder: Are they trustworthy? Who is leading?Buyer: Is this going to propel my business forward? Is this added value?Entrepreneur: Is it enough? Can I make the business case?
    • 6. ANGEL INVESTMENT EXAMPLE Sub- Contact MembershipCoherent, clear, well- Committee 15 min pitchwritten exec summary 15 min pitch 5-10 min q/a or business plan 5-10 min q/a Who you Who you know/ED. Who you know/Champion. know/Champion. DUE Term Sheet Assignment DILIGENCE Risk Assessment Reports Team Membership Vote Board Membership
    • 7. NO MATTER WHATAs an entrepreneur, your fiduciary responsibility is to maximize wealth for your shareholders. In good faith, you must be on your game and be prepared.Have confidence (not arrogance).
    • 8. DOCUMENTATIONVersion Control:Governance: formation papers, operating agreement/by-laws, cap table,board notes, lawsuits (current or pending)Intellectual Property: applications, process documents, awards(trademarks, copyrights, patents)Sales: customer list, pipeline, projections/actual, demos/presentations,client testimonialsInvestment package: business plan, financials, PPM, deck, qualifiedinvestor
    • 9. DOCUMENTATIONVersion Control:Accounting: tax documents, licenses, payments, A/R, A/P, debt,insuranceHuman Resources: employee guides, org chart, compensation, bios,hiring/attritionOperations: suppliers, partners, implementation/fulfillment, serviceProduct Development: new product pipeline, market need,risk/contingency
    • 10. DON’T GET IN A BOONDOOGLE!Don’t waste their time or yoursDo it - Document itGives you confidence about the businessStorageDue diligence e-room: access to various levels of information.Notebooks: Some like paper.
    • 11. WHAT DOES THAT MEAN?The 70-30 Rule* Leadership. Can they do it? Will they do it? Facts. What have you done? How do you know?*Subjective in all cases and different in a sale
    • 12. Thanks!