I retired from personal blogging in July 2008.
But you can find me over at http://blog.xero.com.
I did a session last night at an AngelHQ event on the subject of DD. I’ve been through a few of those. Phil from Movac spoke and gave a great perspective of DD from an Angels perspective. I’m usually the DD’ee not the DD’or.
Andrew Simmonds from SimmondsStewart had some great practical advice during the sessions. Andrew and Victoria have done lots of Angel investment work and really understand all the issues around startups so I recommend you talk with them when you get set up. They can work you through Shareholders agreements and all the other legal things you need to get sorted.
DD is a fact of life for small companies so my advice is to understand it from day one and always be ready for DD. Having all of your information to hand is a good discipline for business owners to get into.
I’ve used John Horner from Quigg Partners as well on a number of DD projects. John was happy for me to post this DD checklist so you can see the sort of things you need to think about.
Quigg Partners sample DD checklist
For me the main things an early stage tech company should keep on file are:
- All material contracts
- Shareholders agreement and constitution
- Employment contracts
- A register of all 3rd party components you use and their licenses
- Any NDA’s (you are dumb enough to sign)
- Board minutes
- Financials for each month (easy in Xero)
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Thanks for this Rod, as a CHQ company member we will need to be going through this process fairly soon. Would be great if you could comment on what would be your checklist prior to DD?
The point is that you should have all of these things prior to DD. You should always be ready for DD.
+ A great 2 page business summary
For IP intensive companies (i.e., most ICT companies), we also recommend keeping an IP protection folder or database. Obviously, trade mark and patent applications and registrations in any jurisdictions (if you have those) but also, all iterations of material in which you might want to assert copyright, date stamped and ordered. This might include code but also extends to look and feel items such as marketing materials, website screenshots, diagrams, business plans, design briefs etc - anything that encapsulates your IP and which shows that you developed it. A brief narrative document outlining the development path is also very useful (a bit like release notes issued with software patches - 23/01/03 added functionality x to module y as per attached; 24/02/03 extended spec for y to include z).
For many ICT companies, copyright will be one of your most significant protection mechanisms but you need clear evidence to establish ownership at any point in time. There is nothing worse than getting into a DD exercise for a sale or investment where you are asserting that all your value is in your IP, only to find that you cannot substantiate your ownership of it. Tends to reduce your leverage somewhat.
One other thing - please make sure you know (legally) who owns your IP. Is it the founder, her trust, the company, a JV with a contractor or what? Difficult to front up to these issues sometimes at the start but often impossible later.