At South Point, we use a 3-stage due diligence process to gain an understanding of companies that we’re evaluating. Taking an “outside-in” approach, we conduct an objective assessment of your company’s potential for creating value. We look at key performance indicators including financial drivers, organizational capabilities, market-driven metrics and customer benchmarks.
STAGE I: SCREENING
We use a predetermined Checklist that covers the following components:
1) General company information
a) A history of the company, original and any succeeding business plans, the company’s mission statement, and both short- and long-term goals and objectives.
b) Total addressable market (TAM) and serviceable available market (SAM).
b) High level review of Intellectual Property (IP) assets.
c) Review of fixed assets, facilities and equipment inventory, and supplier contracts.
2) Financial metrics
a) P&L (balance sheets and income statements) for prior years, projected financial statements, insurance coverage, tax filings, and “sources/uses of funds” statements.
b) Discounted cash flow
c) Capitalization Table (“Cap Table”)
STAGE II: COMPREHENSIVE DUE DILIGENCE
Our Stage II checklist helps us understand the management team and its ability to execute, the target market’s potential, and the product or service as a solution, i.e., “product-market fit.”
1) Products and services
a) A catalog listing of products and services, and their features and benefits.
b) Product development road map.
c) Company patents, copyrights, and trademarks, as well as the kind, number and value of licenses owned by the company and agreements with licensees.
2) Marketing and Competition
a) The company’s marketing plan, detailed market analysis, growth opportunities, SWOT analysis, and purchase agreements.
b) Information about the competition, i.e. list of major competitors, and analysis of the competition — present and future, market trends the “competitive landscape”.
c) Strategic alliances and partnerships
3) Customers / Pipeline – Review of key accounts, receivables and likely prospects.
4) Business model – Structure and differentiation.
5) Team – The founder and managers and their capacity to execute based on demonstrating focus on priorities, adaptability and operational discipline.
STAGE III: LEGAL DUE DILIGENCE
Our legal team, working with your team, conducts a review of your company’s legal and organizational structure with a focus on the following components:
1) Formation. Articles of incorporation, by-laws and formation documents. Copies of contracts and agreements binding the company, and warranties/service agreements on company products and any product liability documents.
2) Litigation. Issues of current or pending litigation as well as any relationships with applicable regulatory agencies.
3) Employees and contractors. A listing of employees, along with an organization chart, including the resumes of executives and board members, and copies of employment contracts. Information about company advisors, i.e. legal, financial, insurance, and other fields.