Submitting questions to an IB for an initial diligence call (very basic and beginner questions)

Ok, I can’t give you a whole crash course rn and have never actually worked at this early of a stage but I am going to try to help you out of the current predicament you have found yourself in.

1) the EV of these businesses I think is generally all equity because they are early / have minimal CF to pay interest right. So a company raises $100m at a $1000m valuation means the pre-money EV is $1000m and the post money is $1100m (the valuation and the new raise or “new money.”)

Now, the way to build this diligence list is to imagine that I just asked you your view on the investment, whether we should invest and what kind of return we can expect. You need to give me your view and be intellectually honest here, make sure you believe and know why you believe everything you tell me.

Also, I am sure you have already done this, but do check your company drive for precedents you can leverage here. I imagine your team has done other software investments. Asking an associate to direct you to a past transaction diligence list is fine, and I would much rather an analyst do that than wallow in analyst hell for a while and produce nothing.

As you try to put together this explanation, you will see the areas that you need info on. These will include:

2) in an early stage business that is SaaS you probably want to focus on understanding how this company makes revenue, make sure you completely understand that. Make sure you can explain to me the quality of their recurring revenue.

3) You must now understand the growth of the business that you can expect, so look at the industry growth rate and growth of your customers and the market size etc. and try to see what you can support based on your evaluation of available data

3a) a sub point here is the scalability of the business (are they going to need more capex or an investment in SG&A?). I think a big thing in growth equity is also like how you and your team can help this business scale so maybe ask one or some questions around that too.

4) Then you want to understand your ability to maintain or grow margins, so look at this business through the lens of the five forces, which will inform your margin outlook and direct you to the important questions in this regard.

5) build a rough financial model or a calculation at the very least of your return on this investment, don’t take more than an hour. Use this exercise to highlight any areas you need to ask about to come to a perspective.

Also, there is a post on here called “thinking like an investor.” Go look at that and pick a reasonable amount of high priority questions to include in diligence list if it makes sense. It might not since this is earlier stage.

Hope helpful.