The term 'due diligence' refers to the set of activities aimed at investigating, verifying and evaluating the operations and conditions of a company, through the collection and analysis of economic, strategic, managerial, fiscal, legal and environmental information, with particular reference to the corporate and organisational structure, to the business and the market, to marketing and commercial strategies, to management and administrative procedures, to the balance sheet, assets and liabilities, and financial, fiscal and legal aspects.
A thorough due diligence should always be carried out in preparation for projects involving the acquisition of companies or company shareholdings, stock listings, capital increases or joint venture agreements. Even at the base of the choice of projects to be supported on crowdfunding platforms such as 2meet2biz, there is always a process of due diligence of the companies that present the offers.
This is because it is fundamental to have accurate and detailed information on the status and conditions of the company being offered, to evaluate the factors of potential success and to identify any critical issues and risks related to the investment.
5 aspects to consider in due diligence
Due diligence activities often require the research of information and the evaluation of aspects of the company that are not always immediately accessible or brought to the surface by the company that is launching the crowdfunding campaign. The equity crowdfunding portal, once the legal requirements have been verified, begins an in-depth analysis of the documentation, which is fundamental to understanding the possible implications behind an investment opportunity.
We believe that the 5 aspects below can make the difference between a winning proposal and a discarded one.
1. The team
The team and especially the founders, are the backbone of almost all successful start-ups and small-medium companies. And in fact, it is well known that the biggest investors in the world tend to invest more frequently, or in larger amounts, on teams of people with experience in the start-up world. Demonstrating that you have all the necessary skills to deal with global growth, from the business side to the financial and technological side, is strategic for attracting investment.
2. The product/service
This is not about evaluating an idea, but about understanding the value of the product or service within a well-defined market. It is extremely important, therefore, to demonstrate that you have conducted thorough competitive and market analysis. It is useful to be able to present research on comparisons with existing products or services that have possibly demonstrated that the market actually needs the proposed solution.
Other questions you will undoubtedly be asked are: Does the product or service have potential to scale globally and be adopted in other markets and geographies? Is it easily replicable? Is it truly innovative or are the barriers to entry non-existent? Is it patented or patentable?
3. The market
In order to attract investment, a company must show exit potential. For this to happen, the market must be large enough to generate a return on investment.
Presenting an analysis of the market that includes the main trends that cyclically interchange is fundamental to alerting investors' interest.
4. The company's growth trend
Sometimes it can be difficult to truly demonstrate the value of a product or service, or to give an effective representation of the technological development that accompanies it. It is easier, however, to relate values to what has actually been done. In this case, 'traction' is assessed, i.e., the start-up's growth numbers.
Depending on the business model, it's important to present the monthly growth rate, which can refer to various metrics including the number of customers acquired, the cost of customer acquisition, the customer conversion rate, the redemption rate, the revenue generated, the customer pipeline, etc. It's also useful to indicate whether the company has gone through any incubation or acceleration process and whether it has actually achieved any milestones.
5. Exit strategy
Are there good exit potentials? This is a question that you will certainly be asked when you propose your company for a crowdfunding campaign.
Exit is to all intents and purposes the only way in which you can remunerate your investment in start-ups and companies with high growth potential, since it is reasonable to think that these companies will reinvest most of their revenues in the development and expansion of the company itself.
In conclusion, we believe it is important to demonstrate that the company or start-up has been properly established, that it is built on a solid operational foundation and a good business plan to mitigate current and future risks. Making a due diligence folder available to investors so they can easily review the risks is a great move to set up the relationship in an absolutely transparent manner.
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