Several of my customers and potential customers (aka: you) have asked to see a checklist that a VC would use as they perform a recta...errr documentation review your business opportunity.
What is below is a rather long list so Advice point 1: DON'T PANIC.
Tons of this will not apply to a seed start up, all of it might to a big M&A transaction. Just N/A for that item and move on.
The key here is organization of your materials. Start -today- keeping good records.
You can make one set and allow people to come by to read/review. I wouldn't allow anybody to leave with materials unless you had a term sheet and the deal was getting to the real/done stage.
Finally: This is a generic, short form (!), set of items designed to give you an idea of what matters, your milage -and VC- will vary.
I hope this is helpful for you.
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Re: Due Diligence Process
Please provide the following information, if applicable, such that we may begin our due diligence process as soon as possible. In addition to the information below, we will require several site visits to meet with employees and conduct a technology review and conduct customer calls and management reference checks. The information should be organized by number in a binder..
Financial
1. The past three year's fiscal year-end audited financial statements including detailed expense and revenue schedules.
2. Most recent interim results including detailed schedules.
3. Monthly forecast including detailed schedules for cash flow, profit and loss and the balance sheet, for the next fiscal year.
4. A detailed 3-5 year financial model for the company in electronic format.
5. Purchase orders obtained for the next six months.
6. List the company's top ten customers and suppliers during the past three years: their names, phone numbers, addresses, and sales $ volume.
7. Breakdown of revenue for past three years by specific products.
8. Description of fixed assets.
9. Detailed capital expenditure budget.
10. Details of any government grants, tax credits, and how they are reflected on financials.
11. Tax returns for the past three years (please have available for review).
12. List of capital expenditures, including capitalized items, over the past three years.
13. Aged receivables and payables lists and list of accruals.
14. Bad debt experience over the past three years.
15. List of all financial liabilities and general terms of such notes, loans, mortgages, etc. (i.e., lender, payment schedules, interest rates, ranking, personal guarantees, priority agreements, postponements and other pertinent information). Also include contact and phone number with regard to each liability.
16. Explanation and quantification of any current or prior years' foreign exchange losses or gains.
17. Explanation and quantification of any current or prior years' extraordinary losses or gains.
18. A copy of the latest sales pipeline.
Management & Shareholders
19. Organizational chart and résumés of senior management.
20. Any employment contracts, non-compete agreements and employee incentive programs, and a list of employees outlining current compensation and benefits and length of service with the Company.
21. List of shareholders and a most recent list of employee stock option holders (including strike price, vesting time frames, etc.).
22. Details of all non-arm's length relationships and agreements (written or unwritten) among and between the Company and its directors, officers, employees, affiliates, related parties, etc.
23. Outside interests of principals (i.e. Board of Directors, Advisory Committees, etc).
24. Copy of shareholders' agreement.
25. List of all current Board of Directors members and contact information.
Legals
26. Details of any pending or threatened legal claims, disputes or litigation.
27. Details of any past legal claims, disputes or litigation against the Company or its principals.
28. Company environmental policy, previous environmental assessments, notices of violations from any governmental agencies, results of any environmental audits.
29. Copies of all legal materials confirming trademarks, tradenames, copyrights and patents.
30. List of all federal, provincial, local governmental and regulatory agency permits, licenses, approvals, consents and similar rights obtained or that should be obtained in connection with the Company's business.
31. Description of any proceeding, allegation or claim that the Company is acting in violation of any law, regulation or ordinance or other requirement of any governmental authority or regulatory agency.
32. All reports filed with, correspondence with, agreements with, and transcripts of any significant proceeding before any federal, provincial, or local regulatory agency in the last five years.
33. Minutebook with updated minutes from directors and shareholders' meetings.
Other Information
34. Name, address and phone numbers of the Company's professional advisors, auditors, bankers and lawyers.
35. All reports regularly provided to senior management and functional management.
36. Any other significant management reports or letters to senior management concerning the operation and performance of the company during the last five years.
37. Copies of all product warranties and guaranties.
38. Copies of all Company insurance policies.
39. Copies of key man life insurance policies.
40. Copies of all leases.
41. Relevant industry market studies, analyst reports, industry information and consultant's reports.
42. Details of the company's five primary competitors.
43. List of alternative suppliers.
44. Details and costs of pension, profit-sharing, life insurance, disability insurance, medical benefits, travel, accident, bonus, stock option plan, deferred compensation and severance plans.
45. All material contracts, agreements and contingent liabilities not covered above.
46. Copy of the most recent business plan.
47. Copy of the Sales and Marketing Plan if applicable and any marketing brochures, etc.
48. Any other agreements not mentioned above.
49. Customer List with contact name, number, etc.
Very helpful - Thanks for posting up a check list like this.
Posted by: CoryS | April 06, 2007 at 05:42
You forgot the bit about throwing in the Kitchen sink..lol! Truth be told this list is very helpful to both prospective companies and to those wishing to break in to the Venture Capital world. It gives a sense of the actual due diligence required when evaluating prospective companies. Your blogs great keep up the posts.
Posted by: Chris J | April 12, 2007 at 06:33