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Venture Financing Funnel
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Venture Financing:
Key Documents
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Startup Business Plan
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VC Investment in Start-Up Firms: Due Diligence
Factors that are
Analyzed and
Verified |
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Trust, but Verify
Due diligence is a form of research
conducted by
investors
or prospective
joint venture
partners to make certain they're are getting exactly what they agreed to buy.
Trust the information you receive from the
prospective partner, but it's good business practice to verify the facts through
interviews with third parties.
Due diligence emphasizes understanding and quantifying the
risk of the proposed deal, rather than the upside.
VC Investing in Start-up Firms
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3Ws of
Venture Investing
For the
venture capital investment process,
due diligence means a rigorous investigation and evaluation of an investment
opportunity before committing funds. This investigation is conducted by the
parties involved in preparing a registration statement to form a basis for
believing the statements contained therein are true and that no material facts
are omitted. This process includes review of its
management team, business conditions, projections, philosophy, and
investment terms and conditions.
Absolutely vital to making a sound
investment, due diligence verifies any business opportunities that survive the
initial screening stage. For venture capital investments, as few as 10-15% of
proposals make it past the initial screening stage to the full due-diligence
process, and only 10% of those receive funding. This verification process
consists of checking the accuracy of
business plans, audited accounts, and management accounts; getting replies
to warranty and other standard questionnaires; patent searches; and technical
studies. Unpublished accounting information and subjective information are
equally important; these data are collected by calling customers, suppliers,
lawyers, and bankers, and by checking trade journals.
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