Start-ups seeking debt or equity financing will endure a due diligence process conducted by lenders and investors. Failure of the entire management team to be prepared and to have the same vision and supporting documents can stop a deal from moving forward. Having a business plan and bios of your key players is not enough. What steps can you take to ensure the process is a smooth one and the deal closes?
Have all of your corporate records and financials up to date, and internally consistent. (For example, you cannot have a profit and loss statement that differs from your filed tax returns). If you do not show that you know how to run the business, and stay in compliance with various rules and regulations, the investor will not have faith in current management. For start-ups, the investor and lender is investing in the management team more than the business itself.
This is much like a job interview. Get the resumes of the key players up to date and contact references to give them a heads up about the upcoming process. There should be no surprises. Now is the time to address any career anomalies or personnel situations that could be problematic.
Contact key vendors and existing customers. Reconfirm customer satisfaction and consider letting them know that they may be receiving a call in connection with your company’s expansion. If you do have problems you can’t easily remedy, be up-front with the investor (lender) and explain what the company will do to address the situation. Investors and lenders are concerned with how the company addresses business challenges. They are not naïve in believing a company will never have an issue. Business is rarely smooth sailing and simultaneously profitable.
The company should also do its own investor due diligence. This will be a long term relationship, much like a marriage. In most cases, your investor will get a say in running the business (a seat on the board or a veto on certain decisions) and a piece of the pie when the money comes in. Know who you are getting into bed with. Divorce is expensive and painful.
See what you can learn about the keys players at the investor and what you can expect in the coming months and years you will be working together.
These can be complex situations that are new and unnerving. Working with an experienced attorney can help ease the stress and speed up the process so you can get on to using the investment for the next phase of your business.