ACEF BEST PRACTICES Due Diligence Angel （环保联合会尽职调查天使的最佳实践）.pdf

Best Practice Guidance for Angel Groups – Due Diligence David Eyler, Columbia University July, 2007 Due diligence in the venture industry is the investigation and analysis the investor performs to see if an investment opportunity meets the investor’s criteria for funding. For angels as well as venture capitalists, the primary objective of due diligence is to mitigate investment risk by gaining an understanding of a company and its business as well as determining the suitability of the investment for the portfolio. Defining the Risk of the Investment Opportunity It is extremely important to identify the risks of a venture because even in optimal conditions, many elements are required for success. Take the following scenario: • Management is capable and motivated 90% • Market demand is as expected 90% • Production is scaled up as planned 90% • Competition is held at bay and IP is defendable 90% • Liability and litigation is avoided 90% • Company has sufficient capital 90% • Existing customers are able and willing to pay 90% Success Probability 48% In the event that even one of these risks is not assessed correctly, and the chance of success is actually 50 percent, the overall probability success is reduced to 27 percent. Clearly every risk must be kept to a minimum. As an example, Matthew Cherry of Intelex writes: “[Due diligence] issues cannot be glossed over, as evidenced by [1999’s] “hit” of H. H, an Internet company whose market value soared from $53 million to $1 billion in three months, didn’t disclose itsfounder was accused of cheating customers at a previous job. As a result of a lawsuit, this information became public and H shares plummeted 53% cutting