Due Diligence Primer from Wasavi Ventures Academy
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Transcript of Due Diligence Primer from Wasavi Ventures Academy
Basics of Tactical Due Diligence
An Innovative And Dynamic Approach To Venture Capital And Incubation
What Is Due Diligence?
Official Answer: Research determining if a company is a sound investment
Unofficial Answer: Figuring out if there is any chance we can say “yes”
Academy.wasabiventures.com @wasabiventures
Interviews Web research Talking to friends and enemies
WHAT IT ENTAILS:
Due Diligence Fundamentals
Academy.wasabiventures.com @wasabiventures
NOTE: Lots of details on this in the Training Workspace
FIGURING OUT FOUR KEY AREAS
PEOPLE MARKET/TRACTION PRODUCT DEAL TERMS
Things To Get Before You Get On An Interview Call
Pitch Deck and/or Executive Summary
Academy.wasabiventures.com @wasabiventures
NOTE: Great resources on the Training Workspace for making a list of gap questions and also how to review a deck.
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List of things that are missing that you will need to ask for from the founder
List of questions that will fill in the gaps
Understanding of the team and their backgrounds
Asking The 5 Trap Questions
Academy.wasabiventures.com @wasabiventures
Meant to really get all of the details you need from the founder’s vision
Questions that are at the core of an Early Stage startup
Answering them in a competent way is more important than the answer
Question #1: Tell Me About Your Team
How Many People Are There?
Answer has to be less than 10
How Are The People Compensated?
Equity?
Cash?
Both?
Academy.wasabiventures.com @wasabiventures
Do They Cover All Functional Areas?
Any engineers involved?
Any business folks?
Have They Ever Been A Part Of A Startup Before? Do They Have Other Jobs?
NOT A RED FLAG, we actually like it!
Question #2: What Is Your Cap Structure?
How Many Shareholders Do They Have?
Should only be held by the founders if it is a seed round or incubation candidate.
Can’t have more than 10 if it is an A round.
Academy.wasabiventures.com @wasabiventures
Who are the non-founder shareholders?
Relatives?
Friends of ours?
Question #3: How Do You Plan to Make Money?
Are they already making money?
If so, GOOD! How much and how did they make it?
If not, does it make sense what they say?
Red Flag Answers
Advertising?
“We aren’t sure”
“It should just happen because our product is so cool.”
Academy.wasabiventures.com @wasabiventures
Question #4: Who Do You Consider Your Biggest Competitors?
RED FLAGS:
“We really have no competitors.”
“We are doing something that has never been done.”
“Lots of people are in this space, but we are just going to be better.”
Academy.wasabiventures.com @wasabiventures
Do they understand their competitive market?
Are they experienced enough to have looked at the WHOLE market?
Question #5: How Much Money Are You Looking To Raise?
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Only applicable if it is an investment due diligence.
Do they have a lead investor and if so, who is it?
If it is less than $100K, probably not a good investment but could be a good incubation candidate.
Is the $$ over $1MM, if so, probably not that interesting to us.
Learning The Easy “No’s”
Already raised and spent more than $200K and have no paying customers or revenue sources
Academy.wasabiventures.com @wasabiventures
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3 Team is not all geographically located together
No one on the team is technical and they are paying cash for engineering
NOTE: This could make them a perfect candidate for incubation.
Any piece of data they give you that you are 100% sure is a lie
Few Key Thoughts
You should be looking for a reason
to say “no”
Academy.wasabiventures.com @wasabiventures
Be conscientious of time, it is the most
important commodity for a
startup
If you don’t understand
something, ask
Always trust your gut