Due Diligence Due Diligence 24. October 2017 Slide 1

Transcription

1 Due Diligence Due Diligence 24. October 2017 Slide 1

2 Content Due Diligence Process - Overview Team Business Strategy Market Product Market Forces Corporate Development / Exit Execution (of the Business Strategy) Terms and Contracts Formal Due Diligence Due Diligence patrick.griss@zuehlke.com 24. October 2017 Slide 2

3 Due Diligence Elements - Overview Exploratory Phase Terms and Contracts Deep Dive Closing Due Diligence patrick.griss@zuehlke.com 24. October 2017 Slide 3

4 Note: Try to Understand the Needs of Your (Potential) Investors Is there a match with the Startup s needs? Industry Focus Investment Stage Focus Return Strategy Expected Return on Capital Source of Funds Due Diligence patrick.griss@zuehlke.com 24. October 2017 Slide 4

5 Team Due Diligence 24. October 2017 Slide 5

6 Conflict Ability Due Diligence 24. October 2017 Slide 6

7 Trust Due Diligence 24. October 2017 Slide 7

8 Responsibility Due Diligence 24. October 2017 Slide 8

9 Commitment Due Diligence 24. October 2017 Slide 9

10 Ability to Learn If there is any one secret of success, it lies in the ability to get the other person s point of view and see things from that person s angle as well as from your own. Henry Ford Due Diligence patrick.griss@zuehlke.com 24. October 2017 Slide 10

11 Management Team Assessment Team Spirit Conflict Ability Trust Responsibility Commitment Ability to Learn Due Diligence 24. October 2017 Slide 11

12 Management Team Assessment Are key positions staffed adequately? Team cohesion? How did the founders meet/choose one another How were non-founder team members attracted Is there passion? Commitment enhancers: Personal investment Attractive remuneration/incentive plan How are decisions taken? [ ], things are always darkest before they go completely black (Marc Andreessen) Due Diligence patrick.griss@zuehlke.com 24. October 2017 Slide 12

13 Key Positions Strategy (Board, Mgmt) CEO Product Management Regulatory & Quality control Pathway Clinical Aspects Design Control Product Development Corporate Marketing Network Negotiation experience Supply Due Diligence 24. October 2017 Slide 13

14 Business Strategy Due Diligence 24. October 2017 Slide 14

15 Assumption Fact Due Diligence 24. October 2017 Slide 15

16 Validate Due Diligence 24. October 2017 Slide 16

17 When you are studying any matter, or any philosophy, ask yourself only, what are the facts, and what is the truth that the facts bear out. Never let yourself be diverted by what you wish to believe or by what you think would have beneficent [ ] effects if it were believed. Due Diligence patrick.griss@zuehlke.com 24. October 2017 Slide 17 Bertrand Russel, 1959

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22 Business Strategy Top Level Questions Market Definition (the cake) Is it an existing cake or a potential cake that needs to be baked? Market Potential Is the cake large enough to get the investor s money back? Business Strategy -> What slice of the cake can you secure and How do you do it? Are there corporates that are interested in a slice of this particular cake? What makes it a winning strategy? Look at the market forces from an inside-out and outside-in view Market Potential Potential Market Due Diligence patrick.griss@zuehlke.com 24. October 2017 Slide 22

23 Business Strategy Product Definition Who needs/wants the product? pays for the product? uses the product? Why will customers buy? Product Feature Customer Benefit Value How are you making the product make vs buy working capital How are you distributing the product When and how are you generating revenue? Business Model? Value chain to the end-customer. Where are the attractive positions? Where are you? Due Diligence 24. October 2017 Slide 23

24 Business Strategy Intellectual Property (IP) Freedom to Operate Analysis Continuous screening of third party IP (never ever ever stops) Used to understand if a third party could force you out of business with a litigation ( their IP ) IP Protection Patents and their applications, Trademarks, Web-Adresses, Cost factor Used to understand if you can prevent a third party doing business with your IP Note: a patent requires the detailed description of your IP publicly Due Diligence patrick.griss@zuehlke.com 24. October 2017 Slide 24

25 Execution Due Diligence 24. October 2017 Slide 25

26 [after I was kicked out, Scully became ill]. It s the disease of thinking that a really great idea is 90 percent of the work. And if you just tell all these other people here s this great idea, then of course they can go off and make it happen. And the problem with that is that there s just a tremendous amount of craftsmanship in between a great idea and a great product. Robert X. Cringely s 1995 interview with Steve Jobs Due Diligence patrick.griss@zuehlke.com 24. October 2017 Slide 26

27 Execution: Driven by a Team and Its Own Plan The plan should: be a logic consequence of the business strategy be risk driven -> discover weaknesses in your strategy and/or execution plan as early as possible contain milestones -> regularly reassess your strategy/execution plan make your funding needs transparent Due Diligence patrick.griss@zuehlke.com 24. October 2017 Slide 27

28 Streams of an Execution Plan An execution plan is a project plan including following streams (possibly more as well) Product marketing (what do you do to understand your customer and define your product? MVP, short validation cycles) Company marketing (when do you talk to which corporate, how to you achieve a bidding situation for your company?) Product (Research and) Development (what do you do to bring your technology to the distribution channels) Pre-Clinical, clinical requirements (independent or as part of R&D Plan) Supply, distribution and sales Due Diligence patrick.griss@zuehlke.com 24. October 2017 Slide 28

29 Financials Founders should be proactive to familiarise with basic corporate finance Cash flow, Balance Sheet, Profit and Loss The funding need should correlate with the execution plan and make sure assumptions are transparent Order Booking to Delivery Invoice [days] Supplier Cash paid after Order [days] Exec Salaries + Charges Employees Salaries + Charges Notice periods Office space per month Capital Expenditures (CAPEX) Expenses Invoice to Cash received [days].. Due Diligence patrick.griss@zuehlke.com 24. October 2017 Slide 29

30 Financials Ideally your financing rounds are correlated with company value inflection points (such as Technology Proven, First in Human, etc ) Revenues are very hard to predict, especially when they are several years ahead. You need to find a balance between healthy aggressiveness and unrealistic fantasy In Startups founded by Tech-Teams, Product Marketing efforts are very often very underestimated (so is Company Marketing) Venture Investors often do not like to invest capital for working capital Due Diligence patrick.griss@zuehlke.com 24. October 2017 Slide 30

31 Terms and Contracts Due Diligence 24. October 2017 Slide 31

32 Some Terms You Will Come Across Number of shares, share prize (valuation) Board of Directors Liquidation Preference Information rights Share Transfer Right of First Refusal Drag Along Tag Along google seca term sheet for an example For clarification: Term Sheet is a basis for negotiation, from which follow: Investment Agreement, Shareholder Agreement, Articles of Association, Organisational Regulation Due Diligence patrick.griss@zuehlke.com 24. October 2017 Slide 32

33 Formal Due Diligence: A Non Exhaustive List Financials Audited/Unaudited Corporate Law Matters Commercial Registre Articles of Assoc., Orga. Regul. Minutes (Shareholder Meetings, Board Meetings, ) Securities Stock, Convertibles, Options, Warrants Shareholder Agreement Share Ledger Employee Matters Employment Agreements ESOP Overtime Remuneration Vacation not taken Insurances Litigation Taxes Agreements Leases Customers Licenses Due Diligence patrick.griss@zuehlke.com 24. October 2017 Slide 33

34 And my 2 Cents on Pitching: 7 Listeners Pains You Want to Avoid in a Pitch Stuff they don t understand immediately Stuff that makes them shake their head instead of nod Stuff they re unsure if it s a validated fact or an assumption / projection Inconsistent stuff Typos, errors Unpreparedness Am massive amount of microscopic text Due Diligence patrick.griss@zuehlke.com 24. October 2017 Slide 34

35 Thank you for your attention Due Diligence 24. October 2017 Slide 35