The river knows where it’s going. Due dilgence

Hi AIF Team Members:

Let me ask you a quick question. When was the last time you used your local business telephone directory? When was the last time you used Google? Exactly!  Regardless of your entrepreneurial skills, visibility is crucial, it’s just as important is your level of influence that comes from knowing our product/services.  What’s the point?  For those which this may apply; get up, get out, get connected to those businesses (right in your community) that need the types of funding solutions we can provide.  Of course you’ve heard this before, here it is again. Are you any better positioned today than last week, will you meet your personal goals and volume quotas?  If not, why not?  I’m reminded of an illustration Chris shared with me when he first came aboard; “When tempted or deciding to pick up a hitchhiker, chose the person who is already walking.”  Think about it, that’s one of those comments that really makes you say hum mm…. Moving Right Along. J

What have we (AIF) learned?

As a Funding Analyst/Business Development Advisor, selection bias is a key contributor to your success with us. In short, be a “specialist” rather than a “generalist” in sourcing AIF relevant deals and you’ll generate better returns on your invested time.  We’ve found that FA’s performing as “generalist” cast wider nets which leads to us seeing more overall deals, but those who devote time to specializing their searches around well-researched themes or in alliance with a proven operating groups have sourced more relevant opportunities and wasted less time (for them and us) combing through unattractive or irrelevant opportunities.  The bottom-line, if you give us a full and complete “snap-shot” of the applicant, starting with submissions of a completed evaluations, we will are have a much higher conversion rate to funding.  Right?

Ok already, here is the message for the day:

When performing our due diligence we’re really look for three things: 1. exposure; 2. sustainability; and 3. “fit.”

1.      Exposure:

Exposure encompasses every risk or threat you can imagine. The most obvious exposure is litigation, either as plaintiff or defendant.

ü  What was the cause and what is the likely outcome?

Here are a few more specific examples:

• Presumably we’re impressed with a Company’s intellectual property (IP), but we want to know;

ü  is it protected?

ü  Is it patented, are those patents at risk of being challenged or due to expire?

ü  Has the Company taken pains to keep IP in house, with technology measures and non-compete clauses?

• Is the Company compliant with regulations and industry standards? Every Company is subject to generally-accepted accounting principles and OSHA regulations, but as an example, a medical device manufacturer must live up to FDA regulations and industry-specific ISO standards. The short of it is—is the company a law-abiding corporate citizen.
  

Beyond litigation issues, we’re likely to probe whether your funding Applicant has a reputation for being a good corporate citizen?  You can bet we will “Google” the Applicant, looking for campaigns and bad press.

We also will likely ask questions about crisis preparedness:

ü  Does the business have a plan to prevent capital losses, and to react if it happens?

ü  Even, are they insured against “Acts of God” and do they have contingency plans to continue operations?

2.      Sustainability:

The sustainability category of due diligence is all about the Company’s ability to create enduring value and thus perform as a good funded partner. Sustainability provides the foundation on which to continue to build the business. Depending on the industry, sustainability can come in the form of intellectual property, customer retention, competitive landscape, and even the Company’s management structure.

As not to make this exhausting, here are just a few things you should consider as part of your evaluation:

v  Ask the applicant about liabilities—the obvious stuff first, like vendor contracts, bank and non-bank contracts, customer warranties.

v  Look at the “BIG PICTURE,” R & D or product development efforts and sales organization to ensure the Applicant knows their end-customers and their market.

ü  Are they looking to the business sustainably with new product offerings down the road?

ü  Ask an Applicant if they have a history of updating their product line, and if they are a young company, ask if they have the R&D power to evolve.

Ideally, purchase orders are predictable and growing and their customer retention or re-order rates are as close to 100 percent as possible.

v  Does the Company know how to acquire new and repeat customers with a trained sales organization and appropriate sales channels?

Out of hundreds of line items, the following question will get the highest scrutiny, because we will always give premium attention to a Company that can generate predictable revenues and earnings.

v  DO NOT look deeply into financials nor request them to send you any financial or confidential/proprietory documents, just ask these simple questions;

ü  if they have met their financial goals, historically and;

ü  are their forecasts in line with prior performance.

3.      Fit:

In some cases, the value of the target market of the Company adds to our existing market penetration strategy, either by leveraging the brand to expand into new markets or entering into different stages of our own product entry life cycle.

• Culture: We will also look for a fit in corporate culture; this is not a “touchy-feely” factor, but a practical point.
• Cooperation: We will look as well for cooperation. Any unproductive defiance tells you first and us later that the Company won’t fit with AIF as an evolved organization.

ü  We need to know the Company can realign their post-funding objectives, if necessary; champion their mission statement, and can even abandon their “pet projects” with grace? (The only right answer, in both cases, is “yes.”)

• Human Capital:  We look for a mesh with the human capital, so always know who the decision-makers are; identifying key areas where the organizational structure is equal or similar in its operations, such as accounting and purchasing.

Ok already, I know this message is a bit more “technical” than most of my Friday communications, but I really hope you’ll find this information proves useful.  In fact, the reason for the “seriousness” should be obvious; it’s the last quarter of 2011 and the promises we’ve made to ourselves and our partners are really serious.  Of course, there are a lot of new and fantastic operational and structural changes being made in preparation for 2012, but the main question for you and I have remained the same; where are we going?

Once again, be safe out there, have a great weekend and thanks again for all that you do.

Stay Thirty my Friends.


Best Regards