Prior to investing, investors will normally seek to review all the aspects of the deal. This enables them to investigate the key aspects of the business and the investment proposal before committing to an investment.
There are four areas where investors will focus their due diligence and where Azione would help the potential investee in providing clear responses and relevant evidence to their questions:
- Management – This covers issues about the team’s experience, competence, passion, and commitment to execute the business plan and take the business forward to high growth.
- Finance – The investors will check the accounts and areas of the finances that will have an impact on the investment and ongoing growth of the company, ie. existing debts. They also assess whether the projections and forecasts are reliable.
- Legal – This covers the business establishment, including the ownership and shareholding, employment contracts, ownership of IP, and existing commercial contracts.
- Commercial – This covers issues relating to the product, the market, and the competition.
Valuation is a key aspect of the deal negotiation process and determines the share of the business that the investor will own.
Azione facilitates three methods commonly used for valuation:
- Asset valuation – Looks at the value of assets minus liabilities
- Relative valuation – Looks at similar companies’ valuations in the past
- Discounted cash flow – Sum of future cash flows, with each year into the future discounted more heavily
Disclosing the worth of your company to potential investors may cause pause for some business owners. But it is important to be able to show tangible value, and a realistic plan for growth, before you begin to sell equity shares in your company.
Investors will look for the basis for your valuation and whether it seems realistic and sensible, and whether you are prepared to be flexible in your approach to valuation and are open to negotiate. It is important to bear in mind that the approach to valuation impacts the relationship between you as the entrepreneur and your investors.