Verge presentation 2011-03-18


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Verge presentation 2011-03-18

  1. 1. Financial Due Diligence – The Devil is in the Details<br />Ten Tips For Readiness<br />
  2. 2. 1) Create a Data Room<br />Begin storing everything electronically now in an ongoing and comprehensive way<br />For startups with fundraising rounds – try keep the fundraising documents and build upon them<br />
  3. 3. 2) Button-up the important stuff<br />Is it IP?<br />Ask your IP attorneys for a summary of all patents and the upcoming activities<br />Is it B2B?<br />Make sure all major customers have current signed contracts<br />Is it consumer/web-based<br />Have key metrics for the business<br />
  4. 4. 3) Know your unit costs<br />What are your gross and net margins?<br />What costs are variable?<br />What is the proper time horizon to look at customer profitability?<br />
  5. 5. 4) Know who has a “Change of control” provision<br />Know who has them and whether you have good relationship with that vendor/customer. You may need to get them to waive this<br />Check your leases and joint ventures as well as customer and vendor contracts<br />
  6. 6. 5) Prioritize compliance<br />Are all income taxes and annual reports filed? Are you treating sales and other taxes properly in all states?<br />Are all employee files in good working order? Have raises and comp plans been signed off on properly?<br />Is your cap table current? Do you have board minutes?<br />
  7. 7. 6) Document how you recognize revenue<br />Know the regulations that support your treatment<br />Put together a 1 page document summarizing how you recognize revenue, including any exceptions and why those exceptions are permissible<br />
  8. 8. 7) Have GAAP financials or know what is non-GAAP <br />You may have to represent that the financials are prepared on a GAAP basis<br />If there are exceptions, know and justify why you are departing from GAAP<br />Know the implications of changing to GAAP compliant financials<br />
  9. 9. 8) Present a forecast you expect to delivery on<br />This is not a fundraise so be prepared to put forth a plan that the team will deliver on<br />The deal process may take longer than you think so measuring forecast vs. actual may become a factor<br />Exceeding forecasts is one of the best ways to give the purchaser comfort<br />
  10. 10. 9) Know the holes in your business <br />Be prepared to address:<br />Single customer risk<br />Inconsistent financial results<br />Profitability/margin compression<br />No surprises<br />
  11. 11. 10) Keep running your business<br />Deals sometimes take longer or do not close for reasons completely out of your control<br />Keep running and managing the business through the entire close process<br />
  12. 12. Thank you.<br />