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


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


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


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?


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.


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.”


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.”


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?


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


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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”


Be conscientious of time, it is the most

important commodity for a

startup

If you don’t understand

something, ask

Always trust your gut

due diligence primer from wasavi ventures academy

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