Due diligence is the process of researching an opportunity to come to a decision whether an investment should be made or not. There are typically 5 key areas that angel investors will look at in their due diligence: People, Product, Sales, Financials, Legal.
People - Questions Angels Will Ask - Do we share the same values?
- Can we work together?
- Does the management team have accomplishments and a reputation in their industry?
- Does the team have a history of running successful businesses and returning value to investors?
- Are the key people in place? Are there any gaps?
- Are the founding members still involved? How so?
- How do I get along with the entire management team and not just the President?
Product - Questions Angels Will Ask - Is there a proven demand for your product?
- Does the product actually work or is it just a theory? Is there a case study example?
- How does the product differentiate from its competitors?
- Is there any proprietary protection on the product?
- Do I understand how this product works?
Sales - Questions Angels Will Ask - Is the President a technologist or a business person who can make sales?
- Are the projections realistic?
- Do the sales channels and plan of attack make sense?
- Has anyone on this management team sold to this industry before?
Financials - Questions Angels Will Ask - Do I understand the assumptions behind the projections and do they make sense?
- Is the infrastructure in place for growth?
- Is the company valuation reasonable?
- What are the sales pipeline and cycle?
- What are the use of proceeds?
- Will I make 30-40% ROI per year?
- Will I be able to exit is 5 to 8 years?
Legal - Questions Angels Will Ask - Is this company a legal incorporation?
- Does the company have a shareholder's agreement?
- Is it sophisticated enough to prevent company infighting?
- Are the holdings fairly distributed to prevent future problems?
- Is there a shotgun clause?
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