Startup Due Diligence with a VC in a week?
Yae, if you are prepared, it is possible
Whether you are or not with an incubator, being prepared can only help, This topic has been an ongoing discussion for as long as I have been involved in the tech industry. However, the traditional methods of evaluating the team, technology, market potential, execution, evaluation of the company etc. have grown bit more complex in the last 3-5 years.
Seemingly simple technologies, with low barrier to entry attract large investment compared to that of the startup about 10 years ago. Granted 10 years is perpetuity in the startup game. However, certain basics have not changed. At the minimum, any VC, either Angel or VC firms, look for certain basic details:
- Who are you? Or what is the team?
- What do you do?
- What is your secret sauce? If none, simply say so.
- Who are your customers? Or any signed up customers?
- What is the upshot?
A concise pitch, preferably about 10 slides delivered that appeals to VCs. A mature team that can show certain level of financial planning is a plus.
And keep rest of the backup details ready to go to reduce the turnaround time. At the minimum, one should keep the following items ready to be shipped via email or physical documents:
- Team Bio, references
- Already sined up paying customers details
- In-depth Intellectual Property details
- Any patent details
- Financial Plan
- What are you team recruitment requirements?
- In what ways you need help with the logistics of running a business?
Noting is more exciting as showing paying customers. Next is a growing user community.
The faster one gets the funding going, the faster one can focus on building the business.
Always available to help out.
Hmmm... this response falls under the category " How DID they get funding??..." After going through the technical part of due diligence twice, once in 1997 and again 2002 it seems technical part of due diligence has been watered down. Yes the VC's sent there team over to look at our IP, patent applications and team bios, but they also took a hard look at marketing and engineering and production processes. In 1997 the acquisition team rejected the purchase because of weak pre and post production testing processes. From the list above, we had customers, sales, etc.. but there were quality issues and these were because of process. We were rejected because there were other potential startups that did not have these issues. In 2002 technical due diligence uncovered the software was developed using leading edge agile processes so the acquisition team determined that future releases and features would likely be delivered in a timely manner. I went to a post acquisition party and the lawyer from the VC team said the agile process workflows discovered in the technical due diligence really good as a long term acquisition. (We also had sales, customers, a plan). Like any long time Si Valley engineer I see companies get acquired or get great funding rounds, companies I've worked with or for and I ask myself "Wow who did the technical due diligence in this deal?", and then some time after we see the product was not delivered and the acquisition looks 'meh' for the acquiring company. If the delivery process from marketing requirements to delivery of product by engineering were added to the VC checklist they might not close as many deals but the ones they did close would likely deliver on expectations.