North's thoughts on Due Diligence for Angel Investments

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Information about North's thoughts on Due Diligence for Angel Investments
Business & Mgmt

Published on March 17, 2009

Author: NorthVenturePartners



“Comparing investors who spent less than the median 20 hours of due diligence and investors who spent more, shows an overall multiple difference of 5.9X for those with high due diligence compared to only 1.1X for those with low due diligence.”

Excerpt taken from “Returns to Angel Investors in Groups”, a comprehensive study of 539 Angel led investments. Robert Wiltbank, Ph.D. and Warren Boeker, Ph. D., 11/2007.

BRINGING ANGEL INVESTING INTO FOCUS. © 2008 North Venture Partners, LLC | |

1.0 Angel investing is a steep challenge. Don’t make it any harder than it already is. After forming Angel investment groups to share labor and risk, the challenges of early stage investing still haven’t seemed to disappear. Finding innovative new venture investments and then getting a group of critically-thinking, high net worth investors to all agree to move forward isn’t easy, but it certainly can be easier…

Shouldering All The Weight? We Figured. North provides services and software to early stage private equity investors (Angels). Our goal was to reduce friction in the early stage venture market so that the largest possible pool of innovative new companies could grow faster and create that desirable blend of both economic and social value. 2.0 Most Angel groups are strained under the workload that comes with investing in a complex and risky market. Set your group free by outsourcing your heavy lifting. Far too often Angel groups are so occupied with executing group marketing, closing sponsorship sales, driving membership growth, managing investment transactions, and coaxing members to volunteer for various tasks, that they routinely struggle to find the time to filter through and perform effective due diligence on submitted plans. If pooling resources into Angel groups can make investing more efficient, why stop there? By collaborating we can empower innovation together and make Angel investing more rewarding for everyone.

An Improved Vision For Angel Investing. Three years ago North was created by a group of former Virgin executives who left the Richard Branson empire to focus on building holistic solutions for the early stage investing marketplace. We truly believed that by empowering both private investors and forward-thinking entrepreneurs, we could pave a revolutionary new path for fostering tomorrow’s innovation. 3.0 North is a boutique private equity advisory firm providing Angel investors with world-class due diligence and analysis services. We spent nearly a decade researching and working with investors and entrepreneurs to find which key factors influence the success of early stage ventures, and through our experiences we identified a powerful process to apply this knowledge. By building a solution that addresses the key friction point that constrains the Angel investing market, we believe that we can immediately transform the industry in a remarkable way. But don’t take our word for it, let the research speak for itself.

A Long Hard Look Pays Off For Everyone. Deep due diligence is crucial for investing success. It’s what guides investor decisions, builds trust and confidence, and ultimately determines the overall success of the investment. Effective due diligence can be both expensive and exhausting, but to get investors motivated, nothing less will do. Looking at the numbers from the Kauffman research, it’s no wonder why. 4.0 “Comparing investors who spent less than the median 20 hours of due diligence and investors who spent more, shows an overall multiple difference of 5.9X for those with high due diligence compared to only 1.1X for those with low due diligence.” Excerpt taken from “Returns to Angel Investors in Groups”, a comprehensive study of 539 Angel led investments. Robert Wiltbank, Ph.D. and Warren Boeker, Ph. D., 11/2007. Whether you’re an entrepreneur betting your career, or an Angel investor betting your capital on an exciting new venture, what type of return on investment are you seeking? 590% or 110%?

Delivering World-Class Due Diligence. North provides resources that individual investors or groups could rarely afford. If due diligence is the key to preventing losses, and unlocking higher returns; Why not leverage a dedicated team of analysts? 5.0 North combines human analysts, a collaborative due diligence methodology, and data driven software tools for scoring, evaluating, and comparing new venture investments. The North methodology for evaluating new ventures is based upon the combined experience of a pool of world class investors and entrepreneurs. Our unique collaborative filter based due diligence methodology enables constant process improvement based on input and feedback from seasoned industry leaders, investors, and entrepreneurs. In the end, we are implementing this filter to evolve and improve venture investing for everyone. This democratic approach to our methodology enables Angel investors to make highly informed decisions quickly, and with confidence.

Up-Close Evaluation; Nothing Less Will Do. Conducting market research, background checks, reference calls, and the financial modeling that are required to effectively understand a new venture is back breaking work. North uses software, systems, and processes to produce reliable, high quality due diligence reports quickly and consistently. 6.0 From deconstructing the financials to target market analysis; 80 elements of each venture are reviewed in detail so investors and entrepreneurs can make decisions based on reliable data, not just intuition. 20+ Pages of Rigorous Insights & Scoring Comparative Graphing & Performance Chart & Due Diligence Across 8 Categories Written Analysis Executive Summary

Smart Decisions Based On Data, Not Drama. Utilizing a combined human and database-driven due diligence process, North analysts score ventures across 80 elements, providing finely tuned data backed analysis and insights across all critical aspects of each venture. North also contracts with Lexis Nexis® for additional background checking on potential issues that could affect the investment decision. 7.0 The North Venture 360 Report cuts through the subjective spin of any business plan, arming investors with both human insights and the supportive data they need to make a more informed ‘go’ or ‘no go’ decision. Eliminate Risk: Entrepreneurs and investors might not like what the report has to say, but everyone should realize that neither investors or entrepreneurs are well served by spending weeks, or months trying to move a venture forward if it is fundamentally flawed. Accelerate The Venture: An objective third party analysis can either quickly generate meaningful conversations with investors, or it can give an entrepreneur the direct and honest feedback they need to dig in and re-tool their business to put it on the right path.

Flipping The Cost/Benefit Relationship. Historically the cost of deal screening and due diligence has rested on the investor’s shoulders. Given the most common response entrepreneurs hear is ‘No Thanks’ in the form of a template rejection letter, why would it warrant any investment on behalf of the entrepreneur? 8.0 By enhancing the value an entrepreneur receives from the application process (20+ page analysis of their venture’s strengths and weaknesses), investors can now flip the cost of due diligence onto the shoulders of the ‘sell side’ of the equation. The value of the Venture 360 Report is clear for entrepreneurs, it’s an insightful tool that gives their venture the best possible shot at being considered for funding. Worst case, if rejected, the report provides triage of what they need to do to fix their business and make it more ‘investor ready’. When entrepreneurs compare the Venture 360 Report cost to the expense of trade shows, travel, consultant fees, or investment banking fees, the value is clear and the decision is uncomplicated.

Chances Are We’ve Got You Covered. North covers roughly 80% of all new ventures. While our roster is deep enough to cover the most common areas of innovation, we can’t provide reports on everything under the sun. Venture 360 Reports are completed in 7-10 business days and are scheduled on a first come first served basis. 10.0 North provides Venture 360 reports across 7 broad markets enabling us to cover about 80% of submissions. For each industry there are various North Market Coverage economic models, industry standards, and consumer behaviors. Each of these unique Media & Entertainment factors is incorporated into the venture evaluation. The strength and accuracy of the Consumer Products & Services North database of reviewed ventures is enhanced by our market segmentation. Software & IT Services Mobile Devices & Applications Note: The overall scoring and analysis output is calibrated to seek the greatest possible Business Products & Services economic return regardless of market sector. Retail / Distribution Sustainable Industries / Energy

Team Up With North Without Missing A Beat. Angel groups use North to filter more investments and increase the quality of their yield. Minimize risk by working with North for consistent and fast venture analysis. North offers Angels a software licensing program that can enable your team to access North tools to produce reports at a reduced cost. 9.0 North works closely with Angel groups to ensure that we’re seamlessly integrating with their existing venture investing process to increase deal throughput and improve yield. Typical Angel Group Deal Filtering Process: Overcome resource limitations by working with North to quickly create due diligence analysis reports. 70 +6 30 +3 8 1 4 Monthly Submissions Initial Review Secondary Review Due Diligence Investment

Heading North Is Easier Than You Think. North provides confidential Venture 360 Reports for Angel groups, independent investors, investment bankers, and entrepreneurs that are looking for objective insight and feedback on their venture investments. 11.0 Your Next Move: Email us to request a sample Venture 360 Report right now by clicking here. Then take complimentary test drive: Qualifying Angel groups are eligible for one free Venture 360 Report. We are happy to answer any questions you may have. Email us by clicking on the address below, and we’ll set up a time to chat: Read more about what we do at: Northern California Southern California 1729 Telegraph Ave. 4316 Melrose Ave. Oakland, CA 94612 Los Angeles, CA 90029

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