Below is a step-by-step run-down of a typical investment process.
Step 1 - Preliminary evaluation - 1 week
Provided the business plan is met with approval the entrepreneur is contacted for a preliminary meeting.
Step 2 - Preliminary meeting with the entreprenuer and team - 1 to 2 weeks
Provided that the entrepreneur is met with approval further meetings are still likely to be scheduled to give the entrepreneur the opportunity to supplement information that usually is lacking.
The entrepreneur should be able to clearly communicate the following:
· Business idea
· Budget and cash flow
· Business model
· Collaborations
· Key success factors
· Mile stones
· Operational plan
· Risk analysis
· Sales and marketing strategy
· Suppliers
· Team background
· Time schedule
Step 3 - Due diligence - 3 to 5 weeks
Additional market and background data is collected to verify the information given by the entrepreneur and to test the management team's aptitude for success. Provided the entreprenuer gives permission, opinions and advice is also collected from an external network of experts regarding the risks and opportunities related to the business proposal.
Step 4 - Term sheet - 1 week
If all previous steps turn out favourably a term-sheet is created outlining:
· The valuation of the company.
· The amount of money the investor is willing to invest.
· The share of the company that the investor require in return for the proposed investment.
· The owner structure of the company.
· How the proposed investment is linked to specific milestones, each with its own technological, marketing and
organizational aim.
Step 5 - Approval - 1 week
The term sheet is presented to the board of directors of the investment company who collectively have the last say in all investment decisions.
Step 6 - Final agreement - 1 week
Legal counsel prepares a proposed final agreement based on the term sheet. Final points are negotiated and the agreement is signed.
Step 7 - Post investment - Until exit
Investors often require a seat on the board of directors, preferred shares and regular meetings to follow up on strategy execution. If the aims that were outlined in the agreement are not achieved the terms of the agreement may be renegotiated.
