VCIC 2009: Due Diligence Q&A session, Part 1
Posted on 21. Jan, 2009 by admin in VCIC
Having attended many VCIC competitions as a competitor, observer, and judge I wanted to share with everyone a few pieces of advice for the due diligence session. With such a limited amount of time, it is critical to prioritize your questions and manage the response time.
Manage the entrepreneur’s responses
Your time will quickly run out if the entrepreneur begins a long winded response. Set expectations at the beginning of the meeting that you may have to interrupt. Nothing is worse then to have 5 minutes of time elapse before either the entrepreneur finishes their response or someone finally interrupts. Just remember, be polite.
Prioritize your questions
Each team member that asks questions should have their list of questions prioritized. There are some questions that are simply more important than others, especially with the change to the negotiation format for the competition. A few examples:
- “What are your expectations for valuation?” Other teams may ask, and then the judges know the expected valuation for the entrepreneur. If you offer a term sheet with a higher pre-money valuation than needed you’re starting off on the wrong foot even before the negotiation.
- “What milestones will this round allow you to reach?” In an investment into a startup the use of the funds should be to achieve a higher valuation in the least amount of time. Identifying the key milestones is a must for any entrepreneur, therefore it is a good idea to ask them.
- “How much total capital is needed to achieve an exit?” Most likely, a single round will not sustain a company until exit. Hopefully the entrepreneur has based their expected total capital required off of a financial model with meaningful assumptions.
- “What potential exits do you see for the company, and when?” It is best to understand the expectations of the entrepreneur with regards to exit, especially if they have a few potential acquirers in mind. See comparables.
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