Venture Capital Due Diligence
You have presented your plan to the venture capital partners. It was well received and they have offer you a term-sheet. You have negotiated your major deal points and are ready for the investment. Now the VC wants to commence with due diligence.
Wait a minute… what was all that presenting and talking to partners and scientific specialists? Wasn’t that due diligence? Well, yes, sort of. That was due diligence to make sure that the business model and technology were worthy of investment. Now they want to make sure your company is.
Post term-sheet due diligence reviews your corporation at a detailed level to make sure that you do not have any skeletons in the corporate closet. The venture capital firm wants to make sure that they are not opening themselves up to patent infringement litigation, employee disputes, or tax scandals.
The VC will usually want some form of the following information:
Corporate organization and history — basically your minute book plus any partnership agreements or joint ventures.
Management and employee relations – resumes of management, descriptions of key personnel, organizational charts, any changes or planned changes in management
Intellectual property — lists of any patents, pending patents, trademarks, copyrights, etc. as well as all claims and litigation by or against the Company regarding patents and patent infringement.
Financial and accounting matters – Financial statements, preferably audited, over the past three to five years, and copies of all documents from previous financings, stock purchase agreements, shareholders agreements, etc.
Legal and tax matters - all claims and litigation by or against the Company including any issues with income or employment taxes.
Acquisition, divestiture, or reorganization - any documentation surrounding any acquisition, divestiture, or reorganization in recent years.
Each venture capital firm will have its own list of due diligence needs. Even early in the process, you might ask the firm for its due diligence list so you can get a jump on what the firm might want. Often the list will include additional sections on product and sales plans, competitions, public relations, and R&D.
From the date you receive the term-sheet to the funding date will be six to eight weeks, possibly more. Once you have committed to receiving funding from a VC, you do not want to get held up because you are trying to locate documents or make copies.
4 Responses to “Venture Capital Due Diligence”
February 6th, 2008 at 8:19 am
[...] Venture capital due diligenceYou have presented your plan to the venture capital partners. It was well received and they have offer you a term-sheet. You have negotiated your major deal points and are ready for the investment. Now the VC wants to commence with due diligence. Submitted: 3 minutes ago Category: News Submitter: RssFeed Website: cfoyourself.com Report this link: Click here to report Comments: 0 [...]
February 13th, 2008 at 5:22 pm
[...] Worrall talks about what it takes to “do your due”—Venture Capital Due Diligence posted at CFO [...]
February 14th, 2008 at 7:56 pm
[...] has just published their 2/12/08 edition of the Carnival of the Capitalist. The CFO Yourself post, Venture Capital Due Diligence, is included. This blog has some great information for startup companies and entrepreneurs. [...]
March 11th, 2008 at 12:00 am
Dear Sir,
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Thank you very much for your time.
Regards
Yu Ming
President
Rain Bright Investment Consulting Co.,Ltd
Tel:8610-6568-5453
Fax:8610-6568-1443
http://www.rbduediligence.com
yuming@rbduediligence.com
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