Due Diligence for Angel Investors

Copyright 2009 by Marco Messina

• + - Management Team
  • Prior domain experience
  • Diversified domain knowledge
  • Functional diversification
  • Teamwork experience
  • Personal & family issues
  • Did same business before
  • Whole team did it together before
• + - Technology
  • What is proposed
  • How has the problem been addressed to date by others
  • + - Nature of change
    • slow vs rapid cycle
    • fundamentals vs incremental driven
    • from inside or outside industry
    • private vs publicly funded
    • proprietary vs public ownership
  • + - How long has the "idea" been around
    • scientific-engineering window of opportunity
    • economic window of opportunity
    • why now if not before
• + - Market
  • + - Is there a market now
    • who says so besides the founders
    • has anyone tried to fix the pain before
    • is there any alternate way to fix the pain
    • is doing nothing an option for te customer
  • + - Is "customer" proven?
    • is anyone paying full price for it now
    • + - Has product been modified i response to customer input?
      • how was input obtained
      • how many modifications
  • + - Is the market to be created
    • what forces the creation
  • Regulatory obstacles
  • Creation and change of industry standards
  • Cultural resistance
  • + - Vested interests for and against
    • who loses if market is created
  • Protectable markets?
• + - Scalability
  • Idea or Concept
  • Theory
  • Lab demonstration
  • Demonstration Prototype
  • Production prototype
  • Manufacturing
  • Large scale production and distribution
  • Users training
  • User vs beneficiary relationship
  • Quality control-ability at each step of production / distribution
  • Experts availability / creation
• + - Potential Returns
  • R&D capital requirements
  • Corporate development requirements
  • Marketing and channels development
  • WC requirements under fast growth conditions
  • Financial leverage permitted by capital markets
  • Predictability
  • Variability
• + - Exit Strategy
  • + - Cash distributions
    • Royalty funding model
    • How soon is invested cash recovered
    • Multiple after investment is recovered
  • + - Venture sale
    • VC model
    • M&A Revenue multiple for this industry
  • + - Public event
    • P/E capitalization of EBITDA for similar companies
    • IPO market activity
    • Big enough company for IPO
    • Big enough market for IPO