Preparing for Due Diligence

Thinking about preparing for due diligence?   Due diligence is all about process—it’s about finding out what goes on behind the business’s closed doors. Have there been lawsuits, audits of the company’s financial, management team background checks, inspections of facilities, inventory confirmations, etc. –  due diligence is all about finding out if there are any issues […]

Thinking about preparing for due diligence?

 

Due diligence is all about process—it’s about finding out what goes on behind the business’s closed doors. Have there been lawsuits, audits of the company’s financial, management team background checks, inspections of facilities, inventory confirmations, etc. –  due diligence is all about finding out if there are any issues or problems which can harm the company.

 

The operative word here is “process.” Due diligence is, as we all know, a necessary exercise for any transaction, and it is as important in any venture capital deal in private undertakings to raise funds.

The key reason why entrepreneurs hate the due diligence process is that it is laborious and time-consuming. In addition the process sometimes brings a young startup to a virtual halt by holding up fundamental business while attention is diverted to providing necessary information. But much can be done to ease this process.

 

Due diligence is defined as “the complete investigation and analytical process that precedes a commitment to invest.” It comes in two forms. The initial due diligence is by far the simpler one of the two, and it is relatively pain free to most entrepreneurs. A potential investor examines the company to make sure an investment in it meets the firm’s own criteria—investment size, industry, stage of development, rough valuation, conflict with investee, etc.

 

In this e-book we discuss the important aspect of due diligence. By reading it, you should gain an understanding of:

  • The importance of process in undertaking due diligence
  • Why due diligence is a significant piece of work for potential investors, and how they go about seeking the information they need
  • Key areas to which investors look to obtain their due diligence information
  • What investors see that would lead to scepticism for their planned investment
  • The role that due diligence plays for the entrepreneur as he seeks investment dollars to grow his business
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Frequently Asked Crowdfunding Questions

Crowdfunding works on principle where backers or investors support a project and they will use their own money to do so. Crowdfunding is really Crowdsourcing for funds. Check out this Q&A section to get an understanding of Crowdfunding. Better yet download our two free e-books to yourself up to speed.  

There are many ways you can tap into capital to fuel your company needs; but not all sources are willing or accessible to you.

It is really an issue of the level of risk your company possesses at any given time.

For example, in the beginning you will likely self-fund your company with some savings. As your capital needs grow you might turn to family and friends to support you in funding your passion.

As your company grows some more and the capital needs grow as well you might turn to Angel investors. These are somewhat wealthy people that perhaps you do not know personally but will take a chance and fund you.

Next Venture Capitalists and Institutional funds like Banks these groups might look at your company but only when you have a sale-able product, you have customers and you have an emerging business. They are generally very picky about the companies they take on because they are representing Other People’s Money (OPM) so they have to be very careful.

This where Crowdfunding has emerged.

For companies that do not fit the mold for formal traditional sources of capital such as Angel investors, Banks or VC’s, Crowdfunding taps into wallets of Family, Friend and more importantly Fans.

Fans are the people that don’t know you personally but like what you are doing and want to support you.

Crowdfunding has been referred to as the democratization of capital meaning it directly connects people with money that are not necessarily wealthy  – with people who need it. Crowdfunding taps into people’s spare dollars, pounds or pesos and is reinventing finance 10-$1000 at a time.

Crowdfunding is not right for all businesses. Here are five questions for you to ask yourself:

Do you have a social and business network that will back you and be your evangelists during the campaign?

You need to have a wide circle of friends, associates and others that follow you and your project in place well ahead of launching a campaign. You must have at your disposal a social media network as well which means you should be active on Twitter, Facebook and other social media accounts.

These audiences are important in propagating messages about your campaign and creating a ground swell of marketing support that will be needed in getting the word out. If your network is small or non-existent, your campaign will struggle to succeed.

Is your product or offering directed to the consumer market or developers creating products for consumer markets?

If you study the many projects on various Crowdfunding platforms you will notice that the vast majority are business to consumer type projects. Very rarely will you see business to business companies launching a Crowdfunding campaign.

Remember that at the end of the day it is the Crowd represented by people that will make a decision to back a project not a company.

Is your product simple and not complicated – meaning is it simple to explain so the average person gets it?

Overly complex products or services will be a non-starter for a Crowdfunding campaign. If you cannot explain what your offering does in 30 seconds and the average person doesn’t understand what it is and what it does – your product is too complicated. Highly technical explanations or overly complicated products are difficult to get supporters on side.

A Crowdfunding project has to be shareable. If a supporter cannot easily explain your project, it will be difficult for them to spread the word about your project. This does not mean your project has to be simple, but the explanation and descriptions have to be.

Will your product development R&D cycle take months not years?

The tempo of a Crowdfunding campaign once launched is fast.

If done right a campaign can be over in as little as thirty days; therefore if you cannot provide your supporters with instant gratification or in demonstrating your ability to fulfill on the promise in delivering a product with the money raised you should not proceed with a Crowdfunding campaign. Long R&D cycles are a non-starter.

Do you have a working prototype?

If you have a prototype you will have a higher probability of having a successful Crowdfunding campaign. Having a prototype shows supporters that you have done a considerable amount of work developing a product and they can see it as well.

If you don’t have a working prototype than what you are likely offering is an experience to supporters. This could be in the form of an idea or cause. The limitation of experience based project is that they typically do not raise as much money as product based projects.

If you would like a copy of this portion of my Krush™ Campaign Planner please download this free questionnaire and see if Crowdfunding is right for you.

Our website provides resources to support two types of Crowdfunding reward-based Crowdfunding and equity Crowdfunding.

Reward-based Crowdfunding involves backers who support a project if they feel it is aligned with their interests, needs and beliefs. The backer is motivated to support a project they believe in with rewards, experiences, first production products, swag or any creative incentive that gets backers to provide money to support the project.

Crowdfunding backers like customers, vote with their wisdom and their heart.

Equity-Based Crowdfunding (1)

Equity Crowdfunding is a different kettle of fish. It involves investors and these people provide money to a company in return for shares or an ownership stake in the business. Security regulation is involved and it is much more demanding than reward-based Crowdfunding in terms of regulatory requirements, governance, due diligence and company obligations.
Equity-Based Crowdfunding (4)

Raising capital is not a simple process of going out to ask for money and getting it. It takes time, planning and a systematic or organized approach in creating a business that will attract investors or backers.

Your Capital Edge™ has been developed by Lyn Blanchard <linkedin page>

Lyn realized through her experiences as an entrepreneur what really takes place are many interlinked activities to raising money all based on creating business value. If a company is an attractive investment – the capital will come.

What this means is that entrepreneurs need a way to create value in all aspects of their business in order to attract capital.  In other words show their business is “fundable”.

Your Capital Edge is  4s framework to guide entrepreneurs in raising capital and it works. It will increase your chances of getting the funds to need for your passion.

Your Capital Edge (1)

 

Let’s briefly go over the Your Capital Edge™ 4S framework.

Strategy – Yes, there is a strategy in raising money and it starts with knowing how much you need to raise, why you need it, when you need it; along with who you think would be the likely people that will open their wallets to invest in your company.

Your strategies must be focused on what value will be created and how the expression of this value can be translated into investment.

Substance – This seems obvious but if your product is not what customers will buy you just won’t have a business. Substance means that you have done your market research, validated your product with customers, created the financial models that show you calculated where the profitability will come from and you have a clear goal along with tactics on how you are going to get to the next level of growth. Investors or backers

Structure – Your business structure must be designed to attract and receive money. For example, the people in your organization should have the talent and passion to build value.

The value you offer to investors whether in shares or other form of consideration must be compelling and appropriate for them to open their wallets.

The structure of your organization should also have a high level of transparency because this sends the message to investors you and your business can be trusted.

Sizzle – Your investment story can be told in such a way that it exudes excitement, potential and has the hallmark for success. It means that potential investors or people will want to be a part of making you and your business a success because they believe in the heart or essence of what you are building.

So that is Lyn’s 4S Framework for raising capital. The resources provided on this site will help prepare your business and your Crowdfunding campaign to get funded.

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Thinking about preparing for due diligence?   Due diligence is all about process—it’s about finding out what goes on behind the business’s closed doors. Have there been lawsuits, audits of the company’s financial, management team background checks, inspections of facilities, inventory confirmations, etc. –  due diligence is all about finding out if there are any issues […]

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