Martin Kaszubowski currently serves as the Executive Director of the Institution for Innovation and Entrepreneurship at Old Dominion University. Marty has over 35 years of experience with a broad spectrum of public- and private-sector organizations promoting new venture formation, early-stage investment, technology commercialization, and innovation-led economic development. Marty has traveled with the CRDF Global STEP team since 2010, having made 12 separate trips to the former Soviet States: Ukraine, Armenia, Azerbaijan, and Georgia. In addition, he has spent significant time with CRDF mentoring entrepreneurs remotely, reviewing program applications, judging entrepreneurship competitions, and working with incubators, accelerators, and others interested in promoting innovation-based entrepreneurship in the region. Marty holds a Bachelor’s Degree in Aerospace Engineering from the University of Michigan, and a Master’s Degree in Technology Management from George Washington University.

1. Getting Ready for Due-
Diligence
Marty Kaszubowski
Old Dominion University
Institute for Innovation & Entrepreneurship

2. Time
Revenues
Seed Capital
(Friends/Family
& Angels)
Early Stage
(Angels &VCs) Later Stage
(VCs & Strategic
Partners)
Growth
Stage
(IPO,
Investment
Banks)
Valley of Death
Start-upVenture Financing

3. KnowYour Stage!
▪ Idea Stage: “I have a great idea and I need money to turn it into a business”
▪ You may have a great idea, but no plan, product, or customers, and probably no success
record
▪ Count only on yourself, friends, family, and fools for money
▪ Seed Stage: “My invention and prototype works, but I need funding to continue.”
▪ Government grants and industry partners, are you best bet here
▪ Some Angel investors might be interested if you have the right business case and credentials
▪ Scale-up Stage: “The final product works great, and all the early users love it”
▪ Money is required for marketing, hiring a team, and a production process.
▪ Most Angel investors and a few early-stageVCs will be happy to talk
▪ A-Round: “It’s time to scale up and I need money to keep up with demand.”
▪ Every investor wants to be part of your growth stage
▪ Exit Stage: “This was fun! I need my money out so I can go start the next big thing.”
▪ New investors will be investment bankers, private equity, or acquirers

4. 1# 2#
3#
100#
First#Hits#
TM#
Hiring Poorly
Lack of Focus
Building something
nobody wants
4
#
5#
6#7#8#9#
#10
STARTUP MISTAKES
TOP 10
Score: 300
5. Not Having The Right
Co-Founders
36% of Tot.
Score: 153
18% of Tot.
Score: 112
13% of Tot.
Score: 98
12% of Tot.
Fail to execute
Sales & Marke ng
6. Chasing Investors,
Not Customers
7. Not Making Sure You
Have Enough Money
8. Spending Too
Much Money
9. Failing To Ask
For Help
10. Ignoring Social
Media
18 (2,1%)
12 (1,4%)
6 (0,7%)
66 (7,9%)
45 (5,4%)
28 (3,3%)
www.100FirstHits.com

5. … Not all problems can be solved with money!!!
Money CAN help you:
• Write more code
• Create prototypes
• Test products
• Acquire more sale leads
• Build a prettier website
• Allow your QA team to improve quality
• Give you time to make mistakes
• Get to market faster!!!

6. … Not all problems can be solved with money!!!
Money CAN'T help you:
• Know what code to write
• Know what prototypes to build and test
• Know how to convince customers to buy
• Know what your website should say or do
• Help you know when to ship the product
even though it’s not perfect
• Teach you how to learn from your mistakes

7. If you are
thinking
about
outside
investment
✓ Establish a legal entity
• Doesn’t need to be perfect, but it
needs to be flexible enough to allow
different kinds of “investment”
✓ Protect your Intellectual Property
• Doesn’t need to be a patent …Trade
Secrets are good, but need to be
documented
✓ Start building anAdvisory Board
• Industry and technical expertise
• Broad networks of relationships
✓ Have an MVP
✓ Know your customer segment
✓ Have a plan…
✓ Know (or guess…) your value

8. AND START BUILDING
RELATIONSHIPS!!!

10. The FiveThings Investors Have to See
Validated business model
Team that can deliver
MinimumViable Product (MVP)
Early sales traction and a pipeline
Partnerships for early scale

11. Typical InvestmentCriteria
ManagementTeam
Full-Time Commitment
Integrity
Passion
Coach-ability
Creativity
Record of High Achievement
Proprietary Advantage
Unique technology with defensible IP
Difficult-to-replicate business model
Scalability
Markets with big buying power
Potential to dominate market
Large-scale production & delivery
economics

12. Then you (might …) get the
money

15. What we’re going to talk about ...
What “Due Diligence” is, and why it matters to you now.
The different kinds of investors, and what kind of
information each will investor type want to see.

16. What is “Due-Diligence?”
Once you have an investor interested in your company’s potential, you will need to gather and
present a wide range of information for him or her to analyze before making a decision.
For the investor to be convinced he’s making a good investment decision, he will be “diligent” in
what information he considers
The result is a report that either recommends an investment or describes why an investment is
not warranted:
• Market Structure, Competition, and Marketing Strategy
• TechnologyAssessment
• ManagementTeam
• Operating Plan
• Financial Prospects

17. It’s not about risk …
… it’s about uncertainty.
Every investor understands that even well-planned ventures have
risks:
• The technology might not work
• The management team might make poor decisions
• The market and customers might not be ready for the
product
Investors HATE uncertainty – they want to hear you say:
• “We’ve tested the technology and here are the results!”
• “We’ve run similar ventures before, and here are our resumes!”
• “We’ve talked with potential customers, and here’s what they
told us!”

18. Certainty increases as the company matures
Embryonic Growth Mature Aging
Launch the
venture,
establish
competitive
position
Grow &
improve
competitive
position
Sustain
competitive
position
Abandon?
Venture Maturity
VenturePerformance
Source: Third Generation R&D, Roussel, Saad, & Erickson
Uncertainty
~ 100%
Increasing
clarity
Executing a
known business
model

20. Your focus should be …
Do everything you can to reduce uncertainty!
“Certainty is the mother of quiet and repose, and
uncertainty the cause of variance and
contentions” -- Edward Coke

21. Different Information for Different Investors
The type and amount of information you’ll need to
gather and present will depend on how mature
your company is and the type of investor you
seek.
You should be open and honest about how you
plan to execute the business.
It is NOT your responsibility to tell the investor
what he should consider or how he should analyze
the information!

22. Tips to start the process
Get organized, stay organized.
Assign a point person for communications -- Have one person coordinate the
responses to the potential investor.
Assign one person to keep track of information and update documents when
appropriate.
Think of it asYOUR process as much as theirs!
Answer questions thoroughly, but don’t offer more than they ask.
Use the feedback you get to make it easier with other investors.
Take every opportunity to build trust

25. Types of DocumentsYou’ll Need
• Investor Pitch
Documents
• Organizational
Documents
• Management &
Organization
• Board of Directors
• Intellectual Property
• Legal Information
• Development Plans
• Products / Services
• Customers & Clients
• Material Contracts
• Financial Information
• InformationTechnologies
• Environmental
• Contact Information

26. Due-Diligence FocusAreas
Market Structure, Competition, and
Marketing Strategy
Technology Assessment
ManagementTeam
Operating Plan
Financial Review

27. How important is each focus area?
Focus
Area
Friends &
Family
Angel
Investor
Strategic
Investors
Venture
Capital
Market
Structure
  ⚫ ⚫
Technology
Assessment
  ⚫ ⚫
Management
Team
⚫ ⚫  ⚫
Operating
Plan
   
Financial
Review
   ⚫

28. Let’s look at the
worst case
The following is a “Due-Diligence
Checklist” from aVenture Capital
(VC) firm in Washington, DC.
60-70 specific questions
Some questions might take 20-30
hours to answer completely
(Don’t worry, we won’t go through
them all in detail …)

29. Market Structure, Competition, and Marketing Strategy
⚫ To what market does this product service belong? What major subgroups of
services/products or customers exist in this market? What is the size and
growth rate of the relevant segment(s)?
⚫ Who are the ultimate customers? Why will they (do they) buy the product or
service? Why would they switch from their current solution to the
company's product or service? What would stop them from switching?
⚫ How do suppliers reach the customers (advertising, direct sales, etc.)?
⚫ Where does the company fit in the chain of production between raw
materials and the ultimate customer? What companies are downstream and
would motivate customers to buy from this company? Will those key
downstream companies agree to be attentive distributors?
⚫ Does the company plan to alter the supply chain? What evidence exists that
such a change is possible?

30. ⚫ At what stage is this market: (a) Pre-commercial; (b) Emerging; (c) Growth; (d)
Maturity ?
⚫ What are the barriers to entry/exit of competitors? What prevents new
companies from entering the market? Who are the likely entrants? What delays
the exit of unsuccessful competitors?
⚫ What means of promotion will be used? Will there be cross-promotion with
another product or company?
⚫ How is the product sold (independent sales force, in-house sales, etc.)? What is
the length of the sales cycle?
⚫ Who makes the purchase decision? Describe the decision process. How will the
company influence the decision?
⚫ Is there seasonality in the decision to buy the product or service?
⚫ What are the normal terms for payment? What is the provision for customer
service?
Market Structure, Competition, and Marketing Strategy

31. ⚫ What incentives are offered to reseller, distributors, retailers, and the like?
⚫ What distribution channels are available?
⚫ How influential are distributors, retailers, system integrators, training
organizations, and the like? How will the company influence them?
⚫ Who are the competitors (current and likely entrants) and what market share
do they currently capture?
⚫ What are the strengths and weaknesses of each competitor vis-à-vis this
company?
⚫ How aggressively has each competitor responded in the past to new entrants
or competitor moves? What tactics has it used?
⚫ How does each competitor try to maintain or improve its market share?
Market Structure, Competition, and Marketing Strategy

32. Technology Assessment
⚫ What is the company's technological advantage?
⚫ How important are the features offered by the advanced technology to customers?
⚫ How easily can competitors copy or circumvent the technological advantage?
⚫ What stage of maturity is the technology: (a) Idea Stage; (b) Proof of Concept; (c) Prototypes
Available; (d) Alpha Stage; (e) Beta Stage?
⚫ What outside agencies have shown support for the technology (federal government, state
technology supporters, universities, etc.)? Why?
⚫ What outside resources can be drawn upon to advance the technology?
⚫ Have patents been issued or applied for? What do the patents cover that provide a
sustainable competitive advantage?
⚫ Does the company have the means to defend their patents against infringements by
competitors?
⚫ Have appropriate licenses been obtained for technology that is integral to the product or
service, but which does not belong to the company? What are the terms (exclusive or non-
exclusive, sunset clause, payment schedule?

33. Management Team
⚫ Is there a well-researched and thoughtful Business Plan in place?
⚫ Is every key manager and professional experienced enough to execute the Business Plan?
⚫ What deficiencies exist in the management team skills?
⚫ How will the company recruit and retain key management talent?
⚫ How does the management team compare to that of competitors?
⚫ What motivates the management team?
⚫ Has management returned wealth to investors previously?
⚫ Have all key personnel signed non-compete agreements with the company? Do they have
any commitments with prior employers that limit their ability to perform for the company?
⚫ What does the Board of Directors/Advisors contribute to the company (advice, money,
market contacts, recruiting contacts, etc.)?
⚫ How is the Board compensated?
⚫ Do current investors present a cohesive and manageable group?
⚫ Is there relative unanimity of vision amongst the management team, Board members, and
investors?

34. Operating Plan
⚫ How large is the development team? Is the size representative of industry
norms?
⚫ What arrangements are needed with suppliers and distributors? When will
they be in-place? Are there multiple suppliers and distributors?
⚫ Does the proposed spending and staffing fit the marketing strategy?
⚫ How will the company recruit and retain key marketing talent?
⚫ Do the staffing levels for accounting/finance and Human Resources fit
industry norms given size and maturity of the company?
⚫ What types of information systems does the company have? Do the quality
of the systems, and the size of the staff necessary to maintain them fit with
industry norms?

35. Start-up Milestone Description
Completion of concept
definition and initial product
testing
The company is able to articulate the combination of an identifiable market need and a product or
service that will meet that need that is technically possible and fundable through reasonable means.
Completion of prototype
product
A prototype product can be alpha-level software that establishes functionality on an appropriate
platform, or, in the case of engineered products, a breadboard-level system that shows the capabilities
in representative environment.
First financing First significant outside funding, (not counting “Friends, Family, and Fools” or small government
sources) from a sophisticated investor (Angel), vendor financing,VC, or other seed-stage source.
Completion of initial
production and operations
testing
Processes in place that indicate the product can be manufactured and delivered, and/or the service can
be delivered on time and with sufficient quality, etc.
Market testing Initial large-scale marketing of the product or service in advance of full scale production
Production start-up The point at which the market is sufficiently well understood to begin putting production processes in
place.
"Bellweather" sale The first time the company identifies a major target sale, mobilizes to address that target’s needs, and
captures the work. In other words, the first time significant revenue is generated through conscious
action and mature processes rather than dumb luck.
First competitive action The first time a competitor emerges and forces an action on the part of the client to retain a current
customer or compete for a new customer.
First major redesign or re-
direction
The first time, in response to either of a threat or an opportunity, the client undergoes a significant
redesign of current products and/or services, or develops new products or services that will
significantly enhance the current offerings.
First major price change The first time the company is forced to alter prices for existing products, and yet maintain quality and
functionality.

36. Financial Review
⚫ Do the company’s financial projections (income statement, cash flow,
balance sheet,AR/AP) go far enough into the future to show a clear path to
profitability?
⚫ Are the assumptions that underlie the financial projections clear, concise,
and reasonable? Do they fit the operating plan?
⚫ Do the projections ft with historical financial statements?
⚫ Do the margins, growth rates and spending levels match those of successful
competitors?
⚫ Are future funding requirements realistic and adequate to provide proper
margin for unforeseen needs?
⚫ Will they occur after the company has reached an important milestone?

37. But wait … There's more ...
⚫ Corporate Summary Fact Sheet
⚫ Business Plan
⚫ Marketing Plan
⚫ Key Personnel Resumes
⚫ Financial Planning, Cash Flow Model,
Analysis Reports
⚫ Financial Statements
⚫ Profit and Loss Statements
⚫ Balance Sheets, Intercompany
Transfers
⚫ Accounts Receivable / Accounts
Payable Aging Summaries
⚫ Tax Returns
⚫ Asset Ledger
⚫ Client List andActual Sales
⚫ Shareholder Statements
⚫ Credit and Security Agreements
⚫ Minute Book

38. … and more ...
⚫ Summary of Litigation
⚫ Non-Competition, Non-Solicitation,
and Non-DisclosureAgreements
⚫ License or RoyaltyAgreements
⚫ Promissory Notes, Bonds, or
Debentures
⚫ Options or Rights for Capital Stock or
CompanyAssets
⚫ Partnership, JointVenture, or
Marketing, Agreements
⚫ Material Contracts and Agreements
⚫ Cost Sharing Agreements
⚫ Contracts or Other Documents
AffectingAssets
⚫ Development orTechnology
Agreements and Documents
Relating to Business Assets
⚫ Corporate Policies (Insurance,
Operational, Health, Safety, HR)
⚫ Summary of Pending or Proposed
Assessments orTax Liens
⚫ Customer andVendorContracts
⚫ Listing of Sales and UseTax Returns
(All Affected Jurisdictions)

39. A Final Thought …
Focus on reducing uncertainty:
• Emphasize how spending money will improve specific things that are broken
or missing only because money is lacking.
• For those things money can accelerate, show how well you’ve done and
describe how more money will bring more results.
For those things money can’t solve and which you haven’t mastered, bring it
up before the investors do and have a plan.
Show proof of your ability to learn, change, and improve.
If you don’t have a clear, plausible plan, don’t raise money yet.

40. A (final) FinalThought …
The bad versions of “No”:
⚫The silent “No”: You submit a plan, make a call, have a meeting and … nothing
⚫The slow “No”: “This looks very interesting but we would like to see this, this, this
and that.”
⚫The “Yes” that is really a “No”: “We are very interested, but not right now because
we are so busy.Can you come back in two months?
The good versions of “No”:
⚫The clear and fast “No”:They look at your plan, have a meeting, and quickly
offer a specific reason for saying “no.”
⚫The “No” in advance: “We don’t invest in manufacturing”, “We only invest in B2C”,
“We only invested in a company that has been referred to us by someone we trust.”

41. Are you ready for Due-Diligence?
Probably not, but don’t worry …
As your company matures you will:
• Generate the information needed to better understand your
market
• Create sophisticated products and services
• Build and manage a great team
• Implement world-class processes
• Create happy customers
And, when the time comes, you’ll be ready!