Evaluation and due diligence of business angel investments

EVALUATION AND DUE
DILIGENCE OF BUSINESS
ANGELS INVESTMENTS

Claude Florin, A3 Angels

2
CTI Commission for Technology and Innovation | Start-up program Supported by
Venture Concept Sàrl

Evaluation of projects impacts results
% exits
70
60
50
40
30
20
10
0
less 1X to 5X to 10X to more
than 5X 10X 30X than
1X 30X
Less than 20 hours
More than 20 hours
Source: Kaufmann foundation 2007 N= 539 BAs - 3’000 BA investments
4

Assessing and mitigating market risks

Scenario analysis Uncertain predictions
Market size

Market dynamics

Market needs

Willingness
to pay

Target market
5

Valuation matters

Principles Investment example
A bad business at a good CHF 1M investment
price is a looser CHF 20M exit
A good business at a bad ROI simulation
price is not a winner Pre-money Exit after 5 Exit after 7
Price matters valuation years years
Pre-money valuation impact 1 58% 39%
The future determines the 5 27% 19%
value, not the past 10 13% 9%

Source : Peter Pfister, CTI Start-up, 2010
8

Team - Why does it matter so much?
The product/service is what attracts attention

People transform the project into reality

No individual has an infinite array of qualities and
competencies

The observer (i.e. you!) matters as much as the one
observed
Source : Frank Gerritzen,, CTI Start-UP, Angel Days 2012

12

Inventory of competencies

Team Assesment bias
Inventor or entrepreneur ? How to assess the personality
Who is part of the team? and competencies of the
Are competencies entrepreneur and founding
overlapping or team?
complementary? Usus magister est optimus!
Beware your own experience
and projections.
Do not trust your instincts:
objectivity!

13

Competencies vs. attitude
Frequent attitudes Life goals

1. Resistance to change Include entrepreneur and team

2. Difficulty to question own Driving factors
competencies
Looking for lifetime employment ?
3. Infatuation with product / service /
colleagues. Industry experience

4. Lack of sales skills / willingness to Ready to give up CEO title
‘hit the road’
Paranoid, strong personality

14

Team organization and recruitment
What do you bring to the table?
What is the start-up looking for?
Transparency, honesty and clarity (no hurt feelings!)
Know your limitations as much as the entrepreneur’s

Young Experienced
entrepreneurs Business
Angels

16

Strong personality may impact performance
Risk factors

Personality Underperformance
• Over confidence • Poor delegation
• Reliance on of personal taste • Poor planning
and opinion • Excessive optimism
• Intuitive decision-making led • Lack of awareness of the
by emotive factors environment
• Education or experience • Inability to adapt to change.
gaps
• Resistance to advice

24

Role of BA in the team
“Bring something to the party”
 Expertise Share strategy
 Skills Manage problems
 Time Act in good faith
 Networking No self-serving interest
 Money

Young Experienced
entrepreneurs Business
Angels

25

Team motivation with participation
Salaries lower than the market rate but performance bonus
Stock are a useful tool for start-ups.
Shares : employee tax discount 6% year of the lockup period, max 60%
(law revision 2010).
Options : taxed at exercise date.(GE, VD if vesting period)

Attract key management and Act as an incentive for
employees achieving growth targets

Cost effective method for Limit size of pool to prevent
rewarding employees for the dilution of overall share
extraordinary efforts value

28

Investment sectors
ICT,
Software and Multimedia
Medtech, biotech
Environment, Energy and Health
Creative industries
Manufacturing,
Food,
Retail
Services

Source : Popular sectors for investments in EBAN 2008 survey
29

Involvement in Company
Lead investor
Board member
Advisor / coach / mentor
Crisis management support
Exit or next round of fund raising
Passive

30

«More or Less Correct» vs. «Completely Wrong»

vs

Source : Diego Braguglia, CTI Start-UP, Angel Days 2012

32

Technology Adoption Life Cycle
Mainstreet market

Pragmatists: Conservatives:
Use it when it’s ready! Make sure it’s ready!
Early market Late market

Skeptics:
Techies: Visionaries:
Never happen!
Try it! Be the first mover!

Bowling
Alley

Innovators Early adopters Early majority Late majority Laggards
© Chasm Group 2.5% 13.5% 34% 34% 16%
33

Assessing the target market
# patients
Market size Total value of segment
Growth rate
Accessibility
Potential for reimbursement

Market dynamics # competitors per segment
Maturity of product/services
Market penetration and share
Revenue, profitability, pricing
SWOT
Market needs Intensity of competition (Porter)
Investor interest in segment

Variability of needs in segment
Are needs met by current treatments
Willingness Unmet needs and gaps
to pay
Openness of stakeholders to innovations
Likelihood of adopting innovations
Willingness to absorb costs
Source : Stanford Bio design
Target market
34

Market size evaluation
Market Size for product and / or technology to be correctly identified
Top  Down
Reports, Conferences, Web, Stats, …
Bottom  Up
Harvest “real” numbers from different sources
Interviews with industry experts & veterans, sales reps, local players,
Re-calculate the market size
Top  Down and Bottom  UP
estimations should be in the same log range


35

Market Size Identification
Market Size for Product and / or Technology to be Correctly Identified
Strength of the “selling proposition”
New Markets to be created (i.e. social media, …)
Prime Market vs. OEM
“off label” sale potential
Generic vs Branded
Strength of Brand
IP and Trade Mark
…


37

Medtech market analysis
Prevalence Market size
100000
ESRD 47%

Cost / patient / year $
274%
Severe CKD
10000 190%
Moderate CKD
15%
Mild CKD
1000
0 5 10 15 20 %
10 100 1000
Mild CKD Total medical expenses $B

Moderate CKD
Severe CKD
ESRD
39

“Shifts”

Founder(s) Entrepreneur Manager
Friends Team Organisation
Science Product Market
Prototype Trial/Small Scale Manufacture / Sale
Unit: 1x Unit: 10x Unit: 100x
$ $$$ $$$...$


41

Porter’s Five Forces
Newcomers
Ability of new
entrants to start
operations

Suppliers Competitive environment Customers
Relative Competitive Relative
strength and strength of rival strength and
number of firms number of
sellers buyers

Substitution Ability of new
products products to
replace existing
products
48

Medtech sales channels
Yes Complex / expensive No
medical device ?

No dedicated sales
Dedicated sales force
force

Complex
High Low Yes No
Volume ? product
pipeline

Sales force

No Funding supports Yes Access to KOL relationships
sales force ?

2-4 years
Manufacturer Direct sales Specialized
Hybrid model Distributor
licensing force distributor


53

Evaluation of the product and technology
Questions you should consider in relation to products

Is or could the product/technology solving a core problem?
What could be the applications the technology can be used for?
Is the technology disruptive (By factors, not just 10%) e.g.:
Faster
Lighter
Cheaper
Less power consumption
Etc.
What is the status of the development (Research, prototype,
industrialization)

Source : Balz Roth, CTI Start-UP, Angel Days 2012

67

Be aware:

• You might not find the disruptive element in the product/technology but in
the meta-system of potential client (E.g. Lemoptix: Pico-projector:
unreached miniaturization makes it useful for mobile phones. Arktis:
Reduction of false alarms in container ports)

• Calculate the cost-, product-advantage of a potential client application to
get a feel for the market demand, pull.


68

Questions you should consider in relations to clients

Are some clients already willing to pay for services, prototypes?
Has the company identified the most promising application to “test the
water”? Are they focused or just all over the place?
Are they talking to engineers only or is there some pull from business
development of the client company?
Are they able/willing to develop the final product/services in an iterative
way with clients?


69

Be aware:

Don’t get dragged away by the technology. It’s all about the application,
even if the startup does not yet know, which application might be the
most promising one.

What is the design in effort for the client? Even if the technology might
have a huge advantage for the client, if his own engineering effort is
substantial he might be reluctant.

The “pain relieve” for the client is the key, not the nice technology!


70

Intellectual Property Rights - Intangible assets

Patent
Copyright
Design Author right

Trademark Trade secrets

Domain names
Know How
Topography

Plant varieties

71

IP Due Diligence

Granted Patents Patent Applications
Granted claims covering the Assess patentability of existing
product on the market patent applications
Maintenance fees (annuities) Scope of protection (Interpretation
paid ? of the claims may differ from one
Appropriate territorial coverage country to another)
Assess FTO and enforceability of Further searches may be needed
IPR to ascertain patentability
Review licensing policies Ownership of rights
Review the register for security Take into account the 18 months
interests ‘blind period’

73

Decision to apply IP Protection

Pros Cons
protection from infringement risk of disclosure of sensitive
competitive advantage knowledge
returns on R&D investments long, complex and costly
increasing company value procedures
licensing revenues potential difficulties in
raising image of company enforcement of IPRs
security for investors short life-cycle of products
lack of knowledge

74

Questions you should consider considering IP, patents

Who owns the IP, it is protected & has freedom to act
Do the have a second opinion report, e.g. CTI label package?
What’s the patent all about?
Can it easily be circumvented (Most of them can)?


76

Be aware:

• Can you defend a patent as a startup? Most likely you cant. Think about
ways to protect your IP differently (E.g. produce the building blocks with
different outsourcing partners)


77

Take away:

Connect the dots, try to think about the meta-system:
the client application
the clients effort to use the particular technology

Iterate
3h First meeting, read docs, are there enough green lights?
3 days Are the red lights manageable, what do clients say?
3 month Interview with field experts, IP analyses, etc.

Don’t analyze endlessly, rather stop, you never know it all


78

IP Due Diligence

Registered Trademarks Trademark applications
Check effective use of the Assess registrability (availibilty
trademark searches)
Renewal fee paid ? Ownership of rights
Appropriate territorial coverage
Review licensing policies
Review the register for security
interests
Review commercial agreements
(exclusivity …)

79

Patents
Exclusive right or monopoly to prevent competitors from manufacturing,
using, selling, offering for sale, importing the invention in a specific
territory for a limited time.

Protect inventions that are new, involve an inventive step and are
susceptible of industrial application.

They protect :
Technical characteristics / features (product claim)
Process of manufacturing or functions (method or use claim)
20 years from filing date (+5 years for medical

85

Trademarks ® ™
Sign for distinguishing goods and services from competitors on the
market place
May take different forms (word, image, logo, sound, smell, three
dimensional representation …)
Not limited in time
Protection for specific goods or services in a determined territory
Prevent others from using, selling, offering to sale, advertising identical or
similar products or services under the registered trademark

87

Designs ®
Protect the aesthetical aspect (two or three dimensional, shape, contour,
line, appearance, colour, texture …) of a product for a limited time in a
specific territory.

Criteria for registration
Novelty (Prior disclosure prevents obtaining a valid design)
Original creation (Not original if the overall impression only distinguishes
from existing designs by minor characteristic)

Registered for five years, may be renewed for 4 additional 5 years periods

89

Copyright / Author Right ©
Protects the original work of an author.
books, manual, maps, charts, prints, musical compositions, dramatic
works, photographs, paintings, drawings, sculptures, motion pictures,
computer programs, sound recordings, choreography and architectural
works

Protects the expression or the materialization of an idea, not the idea or
concept itself
Automatic protection, does not need registration (use of the © copyright,
[date], [name], all rights reserved) mention recommended
Duration 70 years after the death of the author
International recognition (Bern convention)

90

How to Protect IP and Manage it ?
Keep invention related information confidential
Use 'Non-Disclosure Agreement' in preliminary discussions,
studies or collaboration with sub contractors or academics
Determine ownership of IPR
Assess patentability of the invention (prior art searches)
Determine a strategy for protecting the invention
File and prosecute patent applications
Monitor the market and enforce IP rights

95

Choose your VC
VCs will become your partners and you will spend a lot of time & energy
with them > Choose them carefully;
Target equity at exit is not a function of initial equity stake but the reflects
of the company strategy;
Equity at exit depends on:
Technology success;
Negotiation power;
Market;
Competition.


107

The VC’s new Investment Model
Same as before for the beginning of the story (Company creation with
100k, founders and F&F are shareholders), but…
Once the business model is in place, the first round of investors come
into the company. Ideally some smart money together with deep pockets
to follow over time. Small investment “to see”…
This shareholders’ group is ready to support the company even in rough
times as long as the end goal is still in sight and reachable with
reasonable means. Else down-rounds occur frequently.
New investors may be attracted at a later stage, depending on the actual
cash needs of the company. Will not happen at a “huge” premium
towards initial investors. Exceptions are always possible!
Only investors with long term view and deep pockets might end-up
having healthy portfolios.

111

Some Lessons Learnt
What comes out of our experience …

A game is not won (or lost) until is really over;
Always think a couple of strokes in advance;
Common sense is key;
Grab your luck when you recognize it;
Endurance, Endurance, Endurance;
Timing is key


112

Some Lessons Learnt II
Consider fully funded scenarios only;
Ensure full support of investors and co-investors in rough times;
Start with very small amounts;
Be patient;
Ensure support of larger funds;
Back mainly big ideas;
Small ideas have to be “cheap” or avoided…


113

Levels and methods of valuation

Investor‘s Capital Cash Operating
expenses

Customers
Company
expenses payment Outflow costs
Investor

Investor‘s Dividends Cash Operating
earnings
return + capital Inflow revenues

„VC“ •Discounted cash-flow ,
method •Multiples (comparables)

114

Valuation on the timeline

Par Value Price a Price b Final Price

Time
Foundation Intermediate Valuations Most
(with up- and downrounds) important
Valuation

Pie Financing Rounds Exit
Calculator (Trade Sale,
watch out
for IPO issues)
Source : Jean-Pierre Vuilleumier, Angel Days 2012 © CTI -Invest

116

Valuation: two views
Company’s View
(DCF Method classical)
Company Value = CV
Sum of discounted FCF + Continuing Value
discounted CV
1 2 3 4 5 ∞ t

Investor’s View
(Venture Capital Method)
IRR (Internal rate of return)
EXIT Value
Sum discounted CF = 0

1 2 3 4 5 t


119

Success rate
Number of Category Probability
Projects (in %)
Highflyer (IPO)
1-2 Star (Trade Sale) 10-20 %
Successful EXIT
LifeStyle company
3-4 Survival mode 30-40 %
Bankruptcy
5-6 Failure 50-60 %
Winding down
Source: Rule of thumb of the VC industry.
120

Expected return by stage of company
Project stage Expected Return Multiplicator
(p.a.) (holding period:
5 Years)
Seed 60-80 % 10.5 - 18.9 x

Start-up 50-70 % 7.6 - 14.2 x

First stage 40-60 % 5.4 - 10.5 x

Put those numbers in relation the expected success rates
and the VC Business model!

121

Business model Venture Capital

Initial situation : VC Company with CHF 10 Mio. in funds
10 Investments of CHF 1 Mio. in Start-up
All Exits in 5 years
Data Factor Return
Target IRR for all projects 40% 5.3 x
Highflyers / Star (successful exit) 2 5.3 x CHF 10.6 Mio.
Lifestyle companies (buyback founders) 4 1x CHF 4.0 Mio.
Bankruptcy 4 0x 0
Return of VC in 5 years CHF 14.6 Mio.
Return of VC in % p.a. (IRR) 8%
(calculated on profit of CHF 4.6 for 5 years)

122

Business Angel methods
Berkus Method Meier Method
Sound idea CHF 1 Mio. 1 Manager CHF 1.5 Mio.
Prototype + CHF 1 Mio. 2 Managers + CHF 1.5 Mio.
Quality mgt team + CHF 1-2 M. Value Range: CHF 1.5 - 6 Mio.
Quality board + CHF 1 Mio.
Any roll-out, sales + CHF 1 Mio.
Value Range: HF 1 - 6 Mio.


126

Business Angel methods

Rule of thirds Morbitzer method
1/3 Founders Businessidea CHF 0.75 Mio.
1/3 Management Tea Mgt Team CHF 1.5 Mio.
1/3 Investor (BA) Prototype (PoC) CHF 0.75 Mio.
Board/Investors CHF 0.75 Mio.
Total CHF 3.75 Mio.
Price range method -Value add investor CHF 0.75 to 1.0 Mio.
Only consider to invest if: Valuation CHF 2.75 - 3 Mio.
Valuation range proposed by
founders is CHF 2 - 5 Mio.


127

Valuation of an high potential venture (1)

Lemoptix case study What do we need ?
24-month old technology company, 1. Risk adjusted cost of capital (IRR)
Successfully beta-tested its product 2. Capital Need (investment)
Seeking $2 million of venture capital to 3. Exit timing of investor
go into volume production and 4. Exit Value:
distribution. -Future earnings and profits (NP = net
Forecasting sales revenue of $30 profit)
million with net income of $5 million in 5 -Comparable P/E
years.
What percent of the equity will the
venture capitalists require?


128

Pre- and post-money valuation
Post-money valuation CHF 9.5 Mio 100 %
-Investment CHF 2.0 Mio. 42 %
Pre-money valuation CHF 7.5 Mio. 58 %


131

Internal rate of return (IRR) to compensate risk
Years Years
IRR % Multiple
1 2 3 4 5 6 7 1 2 3 4 5 6 7
1 - - - - - - - 0% 1.00 1.00 1.00 1.00 1.00 1.00 1.00
2 100 41 26 19 15 12 10
5% 1.05 1.10 1.16 1.22 1.28 1.34 1.41
Multiple

3 200 73 44 32 25 20 17
10% 1.10 1.21 1.33 1.46 1.61 1.77 1.95
4 300 100 59 41 32 26 22
5 15% 1.15 1.32 1.52 1.75 2.01 2.31 2.66

IRR %
400 124 71 50 38 31 26
6 500 145 82 57 43 35 29 20% 1.20 1.44 1.73 2.07 2.49 2.99 3.58
7 600 165 91 63 48 38 32 25% 1.25 1.56 1.95 2.44 3.05 3.81 4.77
30% 1.30 1.69 2.20 2.86 3.71 4.83 6.27
.xls function 35% 1.35 1.82 2.46 3.32 4.48 6.05 8.17
= IRR(values, guess) 40% 1.40 1.96 2.74 3.84 5.38 7.53 10.5

e.g.: IRR(D1:D:60,0.3/12)
monthly or annual compounding

136

Valuation matters

Principles Investment example
A bad business at a good CHF 1M investment
price is a looser CHF 20M exit
A good business at a bad ROI simulation
price is not a winner Pre-money Exit after Exit after
Price matters valuation 5 years 7 years
Pre-money valuation impact 1 58% 39%
The future determines the 5 27% 19%
value, not the past 10 13% 9%

Source : Peter Pfister, CTI Start-UP, 2010
137

Discounted Cash Flow
Net residual
value

Discounted by capital costs
Net value of
the free cash-
flow during the
planning
period

Point of time
of valuation
0 1 2 3 4 5 >5

Planning period Residual value
142

Discount rates

Stage Discount CAPM
Seed stage 70-100% 4-14%
Start-up stage 50-70% 4-14%
First stage 50-70%
Second stage 35-50%
Later stage 25-40%

Source: Patrick Frei & Benoît Leleux

143

Every method gives a different valuation

Discounted Cash-Flow Multiples
Often over estimates real value Simple– no negative numbers
Uncertain assumptions Time value not considered
Not applicable for growth Just a high-level forecast
companies
year
2011 2012 2013 2014 2015 2016

turnover multip
0.5 0 250 1,000 2,500 5,000 10,000
1.0 0 500 2,000 5,000 10,000 20,000
1.5 0 750 3,000 7,500 15,000 30,000
annual growth of the residual value 2.0 0 1,000 4,000 10,000 20,000 40,000
8% 10% 15% 2.5 0 1,250 5,000 12,500 25,000 50,000
35% 4,850 5,144 6,135
40% 3,351 3,517 4,048 year
risk ratio

2011 2012 2013 2014 2015 2016
45% 2,359 2,458 2,766 5.0 neg. neg. neg. 2,500 10,000 25,000
EBIT-Multiple
50% 1,675 1,737 1,926 6.0 neg. neg. neg. 3,000 12,000 30,000
55% 1,190 1,230 1,351 7.0 neg. neg. neg. 3,500 14,000 35,000
8.0 neg. neg. neg. 4,000 16,000 40,000
9.0 neg. neg. neg. 4,500 18,000 45,000
145

Growing annuity
A growing stream of cash flows with a fixed maturity.

C C×(1+g) C ×(1+g)2 C×(1+g)T-1
…
0 1 2 3 T

Present value of a growing annuity:

149

Comparables (public companies Europe)
Industry EV/EBITDA EV/EBIT
Biotechnology NA NA
Communications Equipment 5.33 7.75
Computer Hardware 4.91 7.40
Consumer Electronics 3.44 6.35
Consumer Finance 42.67 49.19
Electronic Components 3.70 6.39
Electronic Equipment and Instruments 5.62 8.01
Health Care Technology 5.51 10.45
Home Entertainment Software 4.17 31.04
Integrated Telecommunication Services 5.17 10.28
Internet Retail 13.73 18.41
Internet Software and Services 8.03 22.55
Semiconductor Equipment 4.65 6.37
Semiconductors 6.31 NA
Systems Software 6.27 8.90
Wireless Telecommunication Services 6.61 12.17

Source: Damodoran on-line

153

Comparables (public companies Europe)
Industry Group Price/Sales Net Margin EV/Sales Pre-tax Operating Margin
Biotechnology 4.72 -11.84% 4.63 -4.23%
Computer Software 2.89 11.09% 2.94 18.16%
Computers/Peripherals 0.85 8.62% 0.84 10.23%
Electronics 1.29 5.48% 1.41 10.25%
Electronics (Consumer & Office) 0.81 3.21% 1.00 7.77%
Heathcare Information and
Technology 1.61 5.47% 1.79 10.84%
Heathcare Products & Services 2.85 14.19% 2.97 19.21%
Internet software and services 1.62 4.63% 1.68 6.87%
Pharma & Drugs 2.22 15.48% 2.57 24.46%
Power 0.89 7.69% 1.62 14.59%
Semiconductor 1.40 1.42% 1.53 6.42%
Semiconductor Equip 2.33 11.85% 2.27 19.44%
Telecom (Wireless) 1.83 23.63% 2.46 16.07%
Telecom. Equipment 0.80 2.54% 0.84 6.53%

154

Creating a startup is a tough journey!
Many interesting projects do not take off, or die…

Growth

Industrialisation
Product development Financing

Commercial validation
Commercialisation
Project Technical validation

158

To build a successful startup, one must:
“Solve an important,
valuable problem…
For clients who have
money…
Who want to pay well…
With a short sales cycle…
And will buy more, soon”

159
Source: Index - Adapted from Ken Morse, MIT

The process
Timeline and milestones
Investments criteria
SWOT and strategic analysis
Due diligence
Contract, term sheet

Deal flow Deal Due Investment Structure Investment
generation screening diligence decision transaction management

160

Investment process

50%
Screening

Evaluation 4 Months

Due diligence

Investment
1%

161

Due diligence process as an ongoing dialogue
Entrepreneur Business Angel
Negotiations
Introduction Deal flow
of business
Pitching identification
opportunity

Valuation
Business plan Due diligence
discussions

Investment Shareholder
Financing
readiness agreement

162
Source: fiban.org

Steps in the investment process
Stage Evaluating B. Plan Due diligence Negotiation Monitoring EXIT

Entrepreneur Prepare Business Plan Provide information Disclose all relevant Provide periodic
business information management
Contact investors accounts
Communicate
with investors
Entrepreneur & Meet to discuss BP Negotiate final terms
investor Build relationship Document constitution
Outline terms and voting rights
Liaise with external
consultants and
accountants
Investor Review the Business Conduct enquiries Draw up completion Seat on board ?
Plan Value the business documentation Monitor
Consider financing investment
structure Constructive input
Initiate external DD Involvement in
major decisions
Reports Business Plan Offer letter Disclosure letter Management
Consultants reports Warranties and accounts
Accountant reports indemnities Minutes of boards
Memorandum and and other
articles of association meetings
Shareholder
agreement
Source : Guide to private equity, BVCA / PWC, 2003
165

Investors are evaluating a number of parameters

166

Four main risks to evaluate
Product risk Technology, patents

Financial risk Expenses, refinancing

People risks Entrepreneur, team

Market risks Business model,
customer demand

Source : Peter Pfister, CTI Start-UP, 2010
168

Top Investment criteria
Selected Criteria BAs VCs
Enthusiasm of the entrepreneur(s) 1 3
Trustworthiness of entrepreneurs(s) 2 1
Sales potential of the product 3 5
Expertise of the entrepreneur(s) 4 2
Investor liked entrepreneur(s) upon meeting 5 9
Growth potential of the market 6 6
Quality of the product 7 10
Perceived financial rewards (for investors) 8 4
Niche market 9 13
Track record of the entrepreneurs 10 8

Source : Mark Van Osnabrugge and Robert J. Robinson, Angel Investing, 2000
172

Business model
Key Partners Key Activities Value Customer Customer
Propositions Relationships Segments

Key Resources Channels

Cost structure Revenue streams

174

Five Types of Start-ups – Be aligned !
Lifestyle Work to live their passion

Small business Work to feed the family

Scalable start-ups Born to be big

Buyable start-ups Born to Flip

Social start-ups Driven to make a difference
Source : Steve Blank’s blog, Sept 6th, 2011
178

Due Diligence Process

Source: http://www.angelcapitalwiki.org/mediawiki/index.php5?title=Due_Diligence
181

Due Diligence Process

Extreme A Best Practice Extreme B

Eyes-wide-shut Reasonable Exhaustive due
investing investigations diligence

Forget cardinal rule : To ensure as far as See themselves as
killer ideas + possible that financial moguls
profitable business entrepreneurs can do rather than mentors
what they say with money

182
Source: http://www.angelcapitalwiki.org/mediawiki/index.php5?title=Due_Diligence

Due Diligence checklist
Track record of the management
Size and growth potential of the market
Demand for product/service among target customers
Ability to deliver product/service on time and at agreed price
Competitive advantage of the product
Competitors
Marketing and distribution plans
Soundness of financial projections
Assessment of the intellectual property rights, if any
Existing or possible legal contingencies
Valuation for the venture
Source : Mark Van Osnabrugge and Robert J. Robinson, Angel Investing: Matching Start-Up Funds
With Start-Up Companies
183

Evaluation and due diligence of business angel investments

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