→
3Ws of
Venture Investing
→
Startup Business Plan
How could
you possibly know?
Formal tools for assessing
managers' strengths, weaknesses, and personality traits
HR departments
Executive recruiting firms
Out-placement services
Venture capital investors (?)
Informal and qualitative tools
8 complementary approaches
Each with its own "test"
Goal: to "flag" key issues
Goal: to form an overall judgment
The 8
Tests
Test 1:
The Introductory Test
Test 2:
The Sniff Test
Test 3:
The "Issues" Test
Test 4:
The Functional Test
Test 5:
The "First Impressions" Test
Test 6:
The Second Meeting Test
Test 7:
The Reference Test
Test 8:
The "Carry" Test
Test
1: The
Introductory Test
Everything is a clean
slate, right?
How did you
hear about this deal?
How do the individual managers who present the investment opportunity set
the context?
How do the individual managers describe and present the key issues?
Is there any "road map" described?
Test
2: The Sniff Test
Making a judgment based
on what you know right now!
Investment criteria are the key
Hand-out Worksheet
-
How this is organized
-
And Why?
What does this tell you?
-
Example case
-
Do-it-yourself
Creating your own "Working Agenda"
-
Check-marks and circles
-
Free-form text
-
Following up . . .
Test 3: The
"Issues" Test
Is there any kind of
problem here?
Problems
Objectives
Conducting a
SWOT Analysis
Implications?
What's needed here?
Collison's Axiom of Planning
Collison's Axiom of
Planning
→
“Problem-solving
”
is not “planning.”
“Planning” is not the same as “problem-solving.”
Effective planning cannot be done without identifying, understanding, and
addressing the
problems
that are critical.
Not all problems deserve attention. Some will just go away.
Test 4: The
Functional Test
"All we need is your
money because everything else is in place."
Making an Activity-Based Model of the company
-
Will it change?
-
Should it change?
-
Why?
-
And how?
The Body Count/Skills Inventory
Roles and Holes
So what?
What changes as a
company grows?
Test
5: The "First Impressions" Test
If this is "first," then
why is it here?
Appearances, if not deceiving, are, by definition, incomplete.
Appearances, even if incomplete, can be eerily accurate.
What's that doodle?
The "wife" test (no, I didn't mean "spouse"…. I mean my
wife – who just “knows”)
Test
6: The Second Meeting Test
Plotting a trend line with one data point
Expectations
Make an agenda for yourself
Plotting a trend line with two data points
Does "time" make you smarter?
Test 7: The Reference Test
Why do due diligence?
Annotated reference lists
Calling vs. meeting vs. sleuthing
Getting and using secondary references
What happens to all this information?
Now what do you know?
And what will you do about it?
Test 8:
The "Carry" Test
Bad coffee at 11 o'clock
Pitching your partners
Are you ready to put your fate in somebody else's hands?
Final
Thoughts
The trick
in conducting
effective due diligence is to be proactive without talking all the time
. . .
In the final analysis, remember it's a judgment call.
It's never final.
