Before making the decision to invest, an investor will research the company. Whether this involves providing a loan, taking a stake or an acquisition, research will be done. How extensively this will be done depends on the nature and size of the business and the corresponding type of funding question.
Due Diligence
This investigation is called Due Diligence (hereafter DD). The literal translation of the English term "Due Diligence" is "with due diligence. In practice, this means identifying all the strengths, weaknesses, opportunities and risks of the company. Based on the DD, an investor has the best possible picture of the company and may decide to invest. Sometimes such studies also reveal "skeletons in the closet," resulting in no further investment at all or the terms of the investment are adjusted accordingly.
Topics covered
A number of topics are covered in each DD track:
- Financial
The company's current and past financial situation, as well as expectations for the coming years. In financial DD, an investor goes very deep into the numbers. - Management & personnel
What does the management and division of labor look like? Are the right competencies in place? How is the structure of the company? An investment is made in the people who led the organization, so it is important for the investor to be sure that these managers are competent. - Legal
Is everything contractually defined and settled properly? Are the right insurances in place and have the right permits been applied for? In addition, all contracts with suppliers, customers or other stakeholders, for example, will be reviewed. - Commercial
What does the market look like? This looks at the company's market(ing) strategy, competition and industry trends.
In addition, some company-specific topics will always be covered during the DD. Each company has different areas of focus during the study.
Good preparation
A DD process is often perceived as intensive by the entrepreneur(s). A lot of information and documentation is requested by the investor and quite critical questions are asked about it. This takes a lot of time and it may also cause distractions from the regular business. But because of these questions from the investor side, it can also provide new insights and/or ideas for the company. In any case, it is desirable to prepare well for this process. Together with your investor we will try to set up this trajectory as efficiently and effectively as possible.
We are also a potential investor for your business. Please be sure to get in touch to discuss the possibilities with me. And read our white paper for more information.
In this white paper you will learn:
- What you have to deal with when you start working with investors
- Differences and similarities between bank funding, subordinated loan and equity capital
- In what ways NOM as an investor can help you
Please note that this whitepaper is only available in Dutch at the moment. We are in the process of translating this whitepaper.
- Danielle van Dalfsen
- Investment Manager NOM